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Cloud Computing Economics: 40-80% Savings in the Cloud?

Cloud will mean a change in the way you do business

Given the state of the global economy and the increasing adoption of Cloud computing it’s no surprise that lately there have been a number of articles on achieving Cloud computing savings ranging from 40% savings according to an EEOC case study to as much as 80% savings according to Microsoft.

However, not everyone seems to believe that they can save money by migrating to the Cloud. A common conversation that I often encounter with business owners is that they have done a “direct” comparison, and don’t see how they can save money migrating to the Cloud. One of those points is addressed in Sourya Biswas’ post, “Looking Back at Joe Weinma’s 10 Laws of Cloudonomics” on CloudTweaks excerpt below.

Utility services cost less even though they cost more.
When a company goes on to the cloud, it may pay more per unit of the service than if it owned the resources itself. But, with cloud computing’s on-demand revenue model, it doesn’t pay anything when those services are not required. This works out much cheaper in the long run.  (See: How Cloud Computing Can Save You Money)

Though aside from scaling down and turning off your highly virtualized environment when not in use, in my years of working with IBM I noticed that even the most sophisticated customers often don’t account for all their costs.  A common scenario is the 3 year comparison. So what are you going to do after 3 years? You don’t plan to refresh your hardware? No software upgrades? Flat labor costs? No increase in healthcare costs for that labor?

I have seen many comparative analysis ignore labor costs altogether and account only for hardware costs; or compare an on-premise VM to a VM in the Cloud with some going as far as to create VM sprawl in order to get the cost of a VM unit down to match a Cloud Service Provider.

Sure, with a narrow analysis, if you take your $100,000+ system and divide by hundreds or thousands of underutilized VMs, your IT shop may artificially look competitive, though I doubt your CFO will be fooled by such a comparison.

There is an inherent conflict of interest when a CEO / CFO asks the CIO to show them how they can migrate significant portions of the IT business unit to an alternative provider. Without a doubt you’ll need your CIO to navigate your business through those tricky Cloud waters, but in my opinion, you’ll also need an independent analysis by an objective 3rd party.

Preferably, that 3rd party is not a legacy IT vendor who will persuade you into building the largest Private Cloud your business has ever seen, nor should it be a Cloud Service Provider touting a Hybrid or Public Cloud that may gloss over the complexity of managing distributed applications on cloud infrastructure, securing your data, and Service Level Agreement (SLA) considerations you should weigh carefully. What good is an SLA that waives the cost of the service, if your business being down will cost you 10 times that amount?

A move to the Cloud doesn’t just mean shifting your IT infrastructure. It will mean a change in the way you do business.

If you want the business agility and savings that the Cloud provides, you have to be prepared to change your processes. It doesn’t do much good to be able to bring up a VM in seconds or minutes if you have a 4-12 week legacy procurement process that no longer involves acquiring physical hardware, but VMs, while still requiring numerous management and finance approvals for what may be a temporary VM instance (and amount to a small expenditure).

In my experience, the process at many enterprises take the same length of time whether it’s a 5 or 50 server purchase. Those processes will have to be re-engineered if one is serious about conducting business in the Cloud.

You’ll also have to contend with managing a change in human behavior. To maximize the benefit of your IT resource shift to the Cloud you’ll have to get IT used to shutting down VMs when not in use, not just firing up a physical server and monitoring it for problems.

In his Cloud Connect keynote on Wednesday, Forrester Vice President and Senior Analyst James Staten told a capacity crowd that to save dough with the cloud, it’s important to be able to scale usage back and turn off the cloud when it’s not needed.

“The power of cloud computing comes through these two words: Down and off,” Staten said.

If you have a small shop where no one works on the weekends or holidays, you want to inactivate those VMs over those periods. Compare that to turning off that $5000 on-premise server. You still have a $5000 hunk of metal in your datacenter capital expenditure, even worse, it may be financed, and that interest meter certainly doesn’t stop running.

You don’t have to believe the Cloud can deliver savings, you just have to conduct a proper comparative analysis – the savings will be there waiting for you.

-Tune The Future-

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More Stories By Ray DePena

Ray DePena worked at IBM for over 12 years in various senior global roles in managed hosting sales, services sales, global marketing programs (business innovation), marketing management, partner management, and global business development.
His background includes software development, computer networking, systems engineering, and IT project management. He holds an MBA in Information Systems, Marketing, and International Business from New York University’s Stern School of Business, and a BBA in Computer Systems from the City University of New York at Baruch College.

Named one of the World's 30 Most Influential Cloud Computing Bloggers in 2009, Top 50 Bloggers on Cloud Computing in 2010, and Top 100 Bloggers on Cloud Computing in 2011, he is the Founder and Editor of Amazon.com Journal,Competitive Business Innovation Journal,and Salesforce.com Journal.

He currently serves as an Industry Advisor for the Higher Education Sector on a National Science Foundation Initiative on Computational Thinking. Born and raised in New York City, Mr. DePena now lives in northern California. He can be followed on:

Twitter: @RayDePena   |   LinkedIn   |   Facebook   |   Google+

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