Cloud // Software as a Service
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3/2/2010
02:01 PM
Joe Weinman
Joe Weinman
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Time To Do The Math On Cloud Computing

At the upcoming Cloud Connect conference, we will evaluate a variety of scenarios that determine where and when the move to cloud computing makes financial sense.

In two weeks, I'll be in Santa Clara at the industry's newest event, Cloud Connect. I'm chairing a track focused on Cloudonomics, a term I coined a couple of years ago to connote the complex economics of using cloud infrastructure, platform, and software services. There are a number of great technical tracks planned, but mine is focused on what I consider to be the most important question: "Why do cloud?"

This is the question that any business-focused CIO must ask. After all, CIO's have a small number of projects that they can really focus on in any given year, and major initiatives must have a compelling rationale or won't get supported by senior leadership, including the board. The technology will only be important if the business value is clear and compelling.

In practice, there are a number of reasons to leverage the cloud. One is agility: Resources and services that are immediately available for on-demand use clearly enhance agility over months-long engineering, procurement, and installation efforts. This can help to introduce new services, test new code, enter new markets, or meet unexpected sales spikes. Another is user experience. Larger cloud providers' globally dispersed footprint can bring highly interactive processing closer to the end user.

But perhaps topping the list is total cost reduction. According to a recent Yankee Group report, 43% of enterprises cite cost control as a rationale for interest in the cloud. So, how exactly should we think about cloud costs? That's the topic of my track.

Consider this: There's a range of schools of thought out there right now. Some believe cloud computing will take over all IT and that CIO's may as well start making plans to shutter their data centers. At the other extreme, there's a view that cloud computing is currently too expensive and that enterprises should focus their attention elsewhere.

The truth lies between these two extremes. Some applications and data will continue to reside in enterprise data centers. Other services are likely to be purely cloud-resident. And hybrid solutions--sometimes also called virtual private clouds--involving the enterprise data center coupled with cloud infrastructure are likely to offer the lowest total cost.

The key drivers of the economics of the solutions depend on a variety of factors, including the enterprise applications portfolio, demand variability, and user experience requirements. Here are some scenarios:

Cloud Cost Advantages: Assuming that all other factors are comparable, if you assess and benchmark the unit cost of cloud services to be lower than that of your owned infrastructure, then you should switch and save. After all, if gas is thirty cents cheaper per gallon at the station across the street, why wouldn't you fill up there instead?

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