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5/21/2010
07:31 PM
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Cloud: Does ROI Matter?

Nobody asked about return on investment during the American Revolution. And, I highly doubt that Edward Jenner was thinking real hard about the total cost of ownership while he was inventing vaccination. Sure, modern democracy and immunology have value. But that value didn't become apparent until time had passed and until these concepts had proven successful. So it will be, I think, with cloud.

Nobody asked about return on investment during the American Revolution. And, I highly doubt that Edward Jenner was thinking real hard about the total cost of ownership while he was inventing vaccination. Sure, modern democracy and immunology have value. But that value didn't become apparent until time had passed and until these concepts had proven successful. So it will be, I think, with cloud.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.

In my research on cloud ROI for our upcoming InformationWeek Analytics report, I haven't yet found an end user that has put together a stringent return-on-investment analysis using discounted cash flow techniques.

I also spoke to a bunch of cloud providers during my research. This week, I spoke to Marten Mickos, CEO of Eucalyptus, Scott Crenshaw, VP and GM of RedHat's cloud business unit, and Lew Moorman, CSO and President of Rackspace's cloud computing unit, and while they do talk to users about ROI, they're also not seeing users get overly excited about specific and detailed ROI.

Moorman said that the enterprise users that he speaks to are chiefly focused on how organizations look at adding cloud computing to the mix of what they're doing today in a safe way, rather than "having a big TCO debate." He rightly points out that IT budgets and ROI studies can be maneuvered in much the same way that statistics can be -- you can tell just about any story you want to if you frame it right. [Oh gosh, he's found us out. ;-)]

Crenshaw told me, "We don't really recommend that customers do a pie-in-the-sky model that shows that IT costs are going to drop 50-60%" because, he says, "maybe it's credible, maybe it's not." We had a great discussion about how CIOs never think they have enough money anyway -- and any savings from cloud computing will likely get redeployed rather than returned to the corporate budget anyway.

Mickos makes a great point that cloud is very similar to something that IT shops are currently doing and proving the return on investment of. "There's a very strong ROI story inherently inside cloud which mimics the one of virtualization." He's of course talking about the notion of taking physical machines that are mostly idle and consolidating them into virtual machines that share the same resources, which always leads to lesser investment of physical resources.

He's also seeing that current cloud customers are mostly in test and piloting mode. "They're saying, 'We understand the fundamentals, let's do a pilot to see if it's true and how much it's worth.'" He doesn't think that stringent DCF calculations will happen for a year, "or it could even be longer."

It's an odd position for a technology to be in. I mean, what the heck? People jumping in without doing stringent ROI studies?

But we're not actually talking about a specific technology, we're talking about a new model, a new way of doing things. That's a lot different. The model is not reality. Even if the reality of a specific implementation fails, the model itself -- that of elasticity, commodity hardware stitched together by clustering software, economies of scale, shared resources -- is compelling enough that it will be successful despite individual implementation failures or successes. And success, as with democracy and immunizations, generally creates a positive ROI.

Jonathan Feldman is an InformationWeek Analytics contributor who works with IT governance, HRM, and strategy in North Carolina. He has provided service assurance and network infrastructure services to the military, healthcare, financial services and law enforcement markets. Comment here, write to him at jf@feldman.org, or on Twitter at @_jfeldman.

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