Cloud
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5/27/2010
10:44 AM
David Linthicum
David Linthicum
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Does Cloud ROI Matter? You Bet!

Is cloud computing so interesting and innovative that business sense is beside the point? No way! The advantage to the business is why we do cloud computing. The core issue is how you calculate ROI. Follow me here...

Information Week's Jonathan Feldman had an interesting article on the fact that ROI may not matter as much as we think when considering cloud computing.

As Jonathan puts it, "Return on investment always matters. But I'm not sure that it matters so much with cloud-computing-the-model versus cloud-computing-the-specific-implementation. Specific cloud implementations may fail or succeed. But the model itself is promising enough that it may not matter whether a vendor's specific implementation succeeds."So, the idea is that cloud computing is so interesting and innovative that no matter if it makes business sense or not is beside the point? No way, man!

The advantage to the business is why we do cloud computing, and where that advantage does not exist, we should not do it. The core issue, as I see it, is how you calculate ROI. Follow me here.

There is really nothing that new in the cloud, it's just storage, compute, cores, middleware, security, etc., that you have delivered as a service. Most of those who calculate ROI around the use of cloud computing focus too much on OpEx vs. CapEx costs, and not enough of the strategic value of the use of the cloud, which is business agility.

The problem is that business agility is difficult to measure, but let me provide you with a few use cases. For example, the ability for a high tech company to automatically provision cores, as needed, to support a spike in demand around the launch of a new product line. Or, the ability to alter core business processes between suppliers to react to a quality issue that's costing the business 2 million dollars a day. Do you see the ROI now?

Cloud computing allows us to address our processing, compute, and storage requirements pretty close to as-needed. Thus, while we avoid CapEx costs, or the need to buy waves of hardware and software, you may actually find that OpEx costs far exceed CapEx costs, but who cares? That not where cloud computing makes money anyway, that's not your ROI.

The best way to approach the true ROI of cloud computing to look at the true inefficiencies that currently exist. Now, put money behind those inefficiencies, or how much they cost you daily, weekly, monthly, and yearly. Then, what would the ROI be if many of those inefficiencies did not exist? Within most enterprises, that number will add up to millions a month. The ability to leverage new technology, such as cloud computing, will provide ROI only if they are able to directly address those inefficiencies, typically by providing more business agility. Sometimes cloud computing does, sometimes cloud computing does not.

Cloud computing is like any other technology; we need to make a business case for it. I think we just need to better understand how to create the right business case. Always keep that in mind.Is cloud computing so interesting and innovative that business sense is beside the point? No way! The advantage to the business is why we do cloud computing. The core issue is how you calculate ROI. Follow me here...

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