Cloud // Software as a Service
Commentary
5/13/2010
12:15 PM
Art Wittmann
Art Wittmann
Commentary
Connect Directly
LinkedIn
Twitter
RSS
E-Mail
50%
50%

Practical Analysis: Our Maturing View Of Cloud Computing

When you lay out the ROI case for cloud services, it becomes clear that it will be an ancillary application delivery method for most companies.

Our latest survey on cloud computing deals with return on investment (the full report will be out this summer). In many ways, thinking about ROI of any new technology forces decision makers to cut through both their own hype and the stuff vendors manufacture to take a studied look at benefits and risks. It's one thing to echo back the desires of line-of-business adherents in pursuit of new investment; it's a far different thing to haul out a spreadsheet in front of the CEO and CFO and claim that you have a handle on the real financial impact of a new technology.

Through all of our surveys on cloud computing, we've seen both excitement and skepticism from IT pros, executives, and line-of-business managers alike, but this was the first survey where both the responses and free-form comments showed the sort of pragmatism that IT professionals usually show toward new technologies. For instance, practically gone is the notion of calculating a one-year ROI. IT pros realize that, for better or worse, moving to software as a service and other cloud services means moving from a model that requires large capex outlays followed by much smaller opex ones to a model that calls for almost no capex but regular, larger opex. That means that what looks like a good deal in years one and two won't look as good in years four and five. In fact, unless the application itself changes, the total cost of moving an application to a service provider will usually increase the overall cost of the application over the long run.

And that five-year case had better be a compelling one, particularly for existing applications. For existing apps, adopting a SaaS model means introducing new risks into their operation, as well as additional configuration, integration, and training costs. Some 59% of respondents to our survey take risk into consideration as part of their ROI analysis of cloud apps (and hopefully everything else). The point here isn't that your SaaS vendor may have poorer security or reliability than your own company has; the point is that you can't easily evaluate its security or reliability. That amounts to risk, and that should be viewed as an expense.

Then there are those integration, configuration, and customization costs. Anyone who has lived through an ERP implementation knows that the cost of the software itself can pale in comparison to the cost of implementing existing business processes in the software. Cloud apps make the most sense for applications associated with very simple business processes, for companies whose processes are highly malleable (such as startups and SMBs), or for uses that are new to the business.

Survey respondents get this, too. In fact, the main reason they give for considering or using cloud computing no longer has to do with cost savings, as it has in other polls. The No. 1 reason (by a 12-point margin) cited is the ability to roll out business technology quickly. This maturing and sobering view of cloud computing should be viewed as good news, but it also means that the cloud is going to be an ancillary application delivery method for most companies for the foreseeable future. Anyone who has a vision of an all--or even mostly--cloud world over the next decade or so is going to be highly disappointed.

Art Wittmann is director of InformationWeek Analytics, a portfolio of decision-support tools and analyst reports. Write to him at awittmann@techweb.com.

To find out more about Art Wittmann, please visit his page.

More than 100 major reports will be released this year. Sign up or upgrade your membership.

Comment  | 
Print  | 
More Insights
8 Steps to Modern Service Management
8 Steps to Modern Service Management
ITSM as we know it is dead. SaaS helped kill it, and CIOs should be thankful. Hereís what comes next.
Register for InformationWeek Newsletters
White Papers
Current Issue
InformationWeek Must Reads Oct. 21, 2014
InformationWeek's new Must Reads is a compendium of our best recent coverage of digital strategy. Learn why you should learn to embrace DevOps, how to avoid roadblocks for digital projects, what the five steps to API management are, and more.
Video
Slideshows
Twitter Feed
InformationWeek Radio
Archived InformationWeek Radio
A roundup of the top stories and community news at InformationWeek.com.
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.