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”.
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.
According to ExecuNet, LinkedIn and other sources, the job market for executive positions “bottomed-out” in the first quarter of 2009. This would seem to suggest that things will be getting better. However, information technology executives remain pessimistic about the near future recovery for chief information and technology officer positions.
