Cloud Economics 101

February 20, 2015

In my day-to-day discussions with customers and prospects about cloud, the one question that’s bound to come up is, “How much money will I save?”. It’s a natural question to ask, but, in truth, it misses the point.

The shift from CapEx to OpEx IT models that cloud facilitates makes costs easier to predict and control – and there’s often (though not exclusively) the opportunity to lower the overall spend – but it’s arguably the intangible benefits of cloud that have the most transformational effects on business, freeing up staff to focus on their jobs and drive innovation. This is where the real value lies.

In some ways, we need to turn the discussion on its head and look at the opportunity costs of cloud. Rather than asking, “What will cloud cost me?” or “What will I save?”, IT directors should be asking, “What will the cost to my business be if I don’t migrate to the cloud?”. In other words, the ‘opportunity costs’.

First developed by British philosopher John Stuart Mill, the concept looks to compare “the cost related to the next-best choice available to someone who has picked among several mutually exclusive choices… Opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered opportunity costs.” There’s a natural link here to cloud.

Looking at the benefits experienced by users of cloud services, they go far beyond simple balance sheets. In 2014 KPMG surveyed 500 Global Executives and their experiences of cloud adoption and its impact on their business strategies. Yes, 49% have driven cost efficiencies, but there were also a host of other reported benefits, which, had cost been the sole driving factor, could have been overlooked:

  • Drive cost efficiencies: 49%
  • Better enable mobile workforce: 42%
  • Improve alignment with customers/partners: 3%
  • Better leverage data to provide insight: 35%
  • New product development/innovation: 32%
  • Develop new business models: 30%
  • Shift to global shared services model: 28%
  • Faster time to market: 28%

The question you need to ask is: “Can I afford not to move to the cloud?”

 

Andrew Smith Blog PhotoBlog by Andrew Smith, Head of IT Professional Services, Annodata.