ROI from the Cloud?


On Quora there was a question about how much CAPEX and OPEX you can save by moving to the Cloud. My short answer is: you might not save any.

My longer answer:

If you compare owning your own data center to owning a car, than hosting is like renting and the Cloud is a taxi. If you have a lot of hardware and software that has been written off or highly utilized in your existing data center then moving your solutions to the Cloud might well increase your monthly bill. Just like a travelling salesman will see a higher transport cost when switching from a car to the use of taxis. In this case virtualization is the best solution.

So why is everybody talking about the Cloud then?

The Cloud is great for three scenarios:

1) If you are starting something new

2) If you have unpredictable load

3) Pay per use services

Starting something new

Startups benefit most from the Cloud since they have to find a sustainable revenue stream before they run out of cash. Time is money. Not having to invest upfront in hardware and growing your hardware together with your needs is very attractive to them.

Also any other type of innovation or unproven business within existing companies should be using the Cloud for the exact same reason.

Unpredictable Load

If you are lucky to be in a situation where your load grows extremely fast and grows together with your revenues, then the Cloud is ideal as well.

Also the case where you have this one day a year where your load is a 100-times larger than the second top day. Or if your load is unevenly spread during some hours of the day and falls to almost nothing during the rest of the day. All these spikes could be moved to the Cloud via a hybrid solution.

Pay per use

Instead of focusing on all that software and hardware that is fully utilized in your data center, you should focus on the software and hardware that is not. Those promising projects that went nowhere. The software that only needs to be used once a month or was hardly ever used.

Software-as-a-Service (SaaS) is the main cost saver for using the Cloud. Substitute infrequently used software by SaaS solutions and pay only for usage. No upfront investment in hardware, licenses, set-up, etc. Pay only for what you use. If you start using this type of software heavily then you can always do a business case to bring it back to your data center. There are thousands of examples ranging from general solutions like CRM, ERP, recruiting, project management, etc. to specialized industry specific SaaS. Look at SaaS marketplaces to understand the full offering.

Convert your CAPEX into Revenues

The last advise is to think about your current solutions. In case you have built a custom solution for some industry problem, then converting it into a SaaS offering for others might be the best way to save you from future CAPEX approval problems. The reason is that when a solution is converted from a cost item into a revenue generator, management all of a sudden will start looking at it with a totally new perspective…

Maarten Ectors is a senior executive whose is an expert in generating new revenues from new technologies like the Cloud, Big Data, Machine Learning, Mobile, etc. He is currently looking for new challenges. You can contact him at maarten at telruptive dot com.

 

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  1. Ramesh Penugonda
    January 7, 2013 at 2:08 pm

    Martin, that’s great explanation. I liked the simple illustration using taxi. Keeping sharing your thoughts. Br Ramesh

  1. January 16, 2013 at 12:19 pm

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