Cloud Economics

Do the numbers make sense from a business perspective?

Technologists everywhere are espousing the value of the cloud. Access your data from anywhere. Achieve unlimited scalability. Don’t worry about running your own servers – let others do that for you.

While these assertions are admirable, there is another area which needs to be looked at: do the numbers make sense from a business perspective?

Rather than spend time defining what the cloud means, the purpose of this article is to look at the use of cloud services in a general sense and the economic benefits that can be realised.

Calculating value

The economic value of cloud-based solutions can be looked at from several different perspectives, including budgeting, resource utilisation, availability and performance and security. Each of these factors will affect different organisations differently. While the cloud will benefit some organisations more than others, they should at least start looking at how cloud-delivered applications can benefit their organisations.

Most cloud-based services charge their customers on a monthly basis, adopting a subscription model for longer-term relationships, with software being used on a “pay as you need” basis. Rather than pay for new hardware and software licenses upfront, organisations can free up typically scarce capital expenditure for other investments that grow the business. Software subscriptions now become an operational expense, and often cost less than the original capex amount. For many organisations, the opex model is advantageous, not least of which because of its predictability.

While virtually everyone now relies on IT, most organisations don’t wish to become IT experts. Due to an increasing reliance on IT, many organisations have had to invest in IT resources – particularly staff. With the availability of cloud-based services that provide email and other core functions, the focus of IT resources can be re-evaluated. Rather than focus on commodity products, the organisation can look to this team to see how IT can differentiate the business and improve overall efficiency and performance. What’s more, upgrades to the software – patches and major releases – can occur seamlessly, without requiring staff and without the traditional disruption and cost to the business that implementing such changes in-house can cause. The direct and indirect savings here can be considerable.

With Internet access virtually ubiquitous, and with devices that are effectively always-on, organisations need to be looking at how they can provide access to key systems, such as email, on an around-the-clock basis. Organisations want to encourage their workers to work whenever and wherever they are, while workers appreciate the flexibility of being able to work when they want. The cloud, with its high availability and access, enables this to happen, while the performance of these systems is designed to support thousands of simultaneous users, more than meeting the needs of the average Australiasian organisation.

When it comes to security, a common question that any organisation evaluating cloud solutions must ask is: “How secure is our current IT infrastructure?” For many organisations, their own systems are considerably less secure than the environments where cloud-based applications are hosted. It’s safe to assume that the investments made in securing cloud-based data centres far exceed the capabilities any single organisation could provide, almost regardless of its size.

Get ahead in the cloud

By investing in the cloud, organisations are effectively outsourcing (at least) some of their IT infrastructure to experts in their field, with capabilities and budgets that exceed the resources available to any single organisation. Some applications, such as email, are becoming commoditised – and organisations will typically get no commercial advantage using email that is on-premise than if it were running in the cloud; and users probably won’t notice the difference. For services such as
email, unified communications and collaboration, accessing a cloud service will likely make sense. For other applications that are mission critical or that differentiate an organisation from its competitors, the cloud could be used as a deployment model, but – right now at least – it probably makes more sense for organisations to run these systems themselves.

Our advice to organisations is simple: Take a look at the applications you use and evaluate the business case of having some of these applications hosted in the cloud. Some cloud offerings can add new capabilities to an organisation at a minimal cost, while cost savings for more commoditised applications, such as email, could quickly be calculated – coming into effect immediately, or at the next appropriate upgrade cycle.

As a delivery model, the cloud isn’t going away, and organisations should look to see how quickly they can take advantage of it.

tim.howell@intergen.co.nz