Many cloud computing boosters use the selling point that establishing large amounts of storage or computing requires no “up-front capital investment”. Pleading before the gods of capital within corporations has been a bane for IT and business operations functions forever. All those appropriation request forms and cash flow analyses – not much fun when you want the servers installed and the software loaded.
What has always been interesting to me is that more thought, analysis, decision-making and accountability goes in to managing the capital investment portfolio than you often see in managing operating expenses. The irony here is that “op-ex” is very often many multiples larger than the “cap-ex” spend in any given fiscal period. If a $400 million company (in terms of revenue) has an operating profit of 20%, then the company managers spent $320 million with likely much less oversight than the $15 million that they might have spent on projects.
At the end of the day, there is no free lunch. Just like leasing became the way to ensure “technology refresh” every 3 years, let’s make sure that cloud computing and all something-as-a-service offerings don’t wind up costing your company more or that the standards of decision-making are usurped by being able to fly more stuff under the financial controls radar.
The saying “you can pay me now or you can pay me later” became a “tag” line in old oil filter commercials where the idea was that you might pay more now for a premium filter but you would be avoiding the cost of replacing the entire engine later. Of course, the assumption is that you would own the car long enough for this to pay off. This was in the era when the majority of people traded-in and bought new cars in 3 or 4 year cycles. Not long after, 3 year leases perpetuated the cycle.
The reality, then, was that most people wound up paying now and they got to do it over and over because later never came!
Another myth that is related is the 3,000 mile oil change. Again, another marketing bonanza because it got people to pay to replace their oil and filters twice as often as the auto manufacturers recommend in the owner manuals.
So back to op-ex and cap-ex and buying infrastructure/software/platforms as-a-service. If I take the op-ex view, it is almost always an incremental view as in year-over-year budgets and the dearth of zero-base reviews. If I take the cap-ex view, everything is an investment and is evaluated as cash-flows over a defined “economic life”. This takes rigor and commitment and the potential for more eyes to see and more ears to hear.
It is not a bad thing to have the option of paying for something as a service. However, it is a bad thing if the selling point is that you get to relieve yourself of the burden of evaluating and justifying the all-in costs of doing it one way or another.
Remember, you can pay now or pay later. Some times, it is nice to get to pay later.
Also, there are more and more seasoned, veteran practitioners of information technology (“IT”) that have been at conferences, had prosepctive suppliers call on them and, in a number of cases, carefully “dipped their toe” in the water on a self-contained project.
But, at the end of the day, does anyone really know what cloud computing really is? I am sure this video with a number of well-known names will clear it up for you:
“…the survey was undermined by the fact that most of those surveyed admitted to not knowing what cloud computing is. The reason is not ignorance, but the many and various ways the term is used. The common strand is that it is something to do with the internet, but even that is undermined if we describe virtual on-premise servers as a “private cloud”.
The closest that I ever came, as a CIO, to entrusting my large company’s e-mail and office apps to a third-party vendor, it was Google that I considered. Unfortunately, a merger got in the way of making good on that idea. But, looking back, the most incredible thing is that I was willing to get serious about doing something that drastic almost 4 years ago!
In this age, 4 years is like a thousand eternities. Since then, Google has only gotten better — way better.
They have an impressive record of producing not only the user-facing eye-candy, cool widgets and very useful, quality applications, but they are world class in mundane-but-important functions like data centers, networks, accounting, project management and support.
It really seems to focus on contacts – on people – which we feel is the direction communication is taking. Email applications currently focus less on people and more on the content of the message. We think tools like Facebook and Twitter better balance the need to know the person behind a message and the message itself. Google Wave moves in that direction…… Overall assessment: It’s already got certain aspects, like navigation, absolutely right. With some great 3rd party apps and greater customization, Google Wave could actually match its hype.
So, Google Wave will be launched soon and will unify web communications in such a way that it will be the container for everything else. It is being built on open source technologies which will create huge developer interest and many add-ins and extensions.
I don’t own Google stock or am associated in any way with the company. But I have to say that I truly believed 4 years ago, and feel much stronger about it now, that they could make certain large software, hardware and services companies irrelevant in just a few more years. And, when that day comes, I would hope that the company stays true to its values. And, when they say that they are the best, all they will have to do is immediately follow with that famous line, “.. no brag, just fact.”
SaaS, the very cool acronym for “software as a service”, seems to have captured center stage in terms of mind share and marketing hype. It is a very alluring concept that also lends itself well to conversations about another overheated marketing concoction known as “cloud computing”. The bottom line is, and always has been, how does a business run its applications environment on a variable cost model rather than a fixed cost model. This was something that we used to call “paying by the drink”. It has certainly been tried before and with some notable successes, such as Salesforce.com.
But, of course, many questions remain as this is an unfinished canvass and the paint is not yet dry. Large software suppliers have a lot at stake in preserving their revenue streams in licensing, true-ups (unfortunately not true-downs), shelfware, maintenance, services, hosting, etc. Customers also have a lot at stake in terms of their customizations, integration, security and a well-developed and understood cost model.
At the end of the day, what will make this worth doing for suppliers? Obviously, the opportunity to generate incrementally more revenue and profitability. In other words, how can I charge you more for a service that costs me less to provide? For customers, it is obviously how can I operate more efficiently in terms of cost and flexibly meet the business needs in an increasingly dynamic environment?
To the extent that innovation is introduced, the market will reward those suppliers. Money-grabbers might “win” in the short-term but will lose-out in the long run as the value proposition becomes more obtuse.
For customers, cavaet emptor (“let the buyer beware”) has never been a more appropriate guiding principle. For IT Leaders, CIOs, CTOs get on board quickly and understand how you are going to handle this tidal wave. For some thoughts, read-up on implications of these technologies on your role.
One side of the story is in this interesting discussion of the open source cloud options by Gary Richmond at Free Software magazine. Ultimately the “answer” lies in careful analysis of the type of project and risk profile. This is where experienced consultants earn their keep in helping customers wade through hype vs. fact.
