Why We’ll Gladly Pay More to Compute in the Clouds

The idea that public cloud computing is cheaper than traditional forms of IT staging, such as on-premises data center and co-location, may have had legs in the early days of cloud’s buzz, but the truth has finally been widely recognized: cloud computing isn’t at face value cheap, or cheaper, than what we’ve been doing up until now.

If that’s the case, then why is cloud catching on?  Isn’t the ultimate goal to lower cost and boost the bottom line, regardless of one’s business?

The effects of moving to the cloud have a much broader impact than simply relocating one’s IT assets to an alternative hosting arrangement.  I think of it in much the same way that the value proposition of virtualization has been slowly, but fully realized over the years.

In its early days, x86 virtualization was seen purely as a means of improving hardware utilization by increasing the application-to-box ratio.  “Consolidation” was the easy win, and it appeared to lower IT expenses because it reduced the hardware budget.

But time revealed that virtualization has a hidden price associated with increased management cost, the most famous being “VM sprawl.”  But by the time this became apparent, the really valuable capabilities of virtualizaton began to take center stage: live migration, rapid deployment, portability of workloads, dynamic resource allocation. Roll them into one term, “flexibility”, and you see why there is more value to virtualization than just bottom line IT costs – it enables the overall business in new ways that were not possible or practical before.

Cloud computing is entering that phase of public awareness where its true benefits are being appreciated. The flexibility ascribed to virtualization also applies to cloud.  But there are others, such as: disaster recovery, capacity on demand, carrier-grade reliability, expense-structured payment, and global reach. The value of these are not reflected in the bottom-line cost of the monthly bill.  They are woven into the business’s new abilities related to agility and simplicity.

So the old rule holds true: only things that improve the bottom line will survive in the B2B marketplace. Cloud computing obeys that law by bringing new value to the table in ways not possible prior to its advent.  Although we’re still learning how to exploit these new capabilities, and to quantify their considerable untapped benefit, there’s no doubt the value is there, and worth the additional cost.

 

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5 Responses to Why We’ll Gladly Pay More to Compute in the Clouds

  1. Craig says:

    A note of clarification: cloud is typically more costly than traditional IT deployments if it is IaaS-based – just moving one’s VM’s to the cloud is NOT cheaper unless the new capabilities mentioned in the post add real value to the business. However, as applications are rewritten to more efficient platforms (PaaS), the true economies of scale advantage of the public cloud can result in significantly lower staging costs (not including the more intangible higher-level value props).

  2. Ankit Bhatia says:

    Hi Craig, Great article.

    We believe we are just starting to better understand the true value and potential of the cloud. As you mention in your comment above, IaaS is just the starting and adds very little value over traditional virtualization solutions. SaaS (Software as a Service) is where the true power of the cloud will be harnessed and we are slowly starting to see enterprises realize that. How long do you believe enterprises start thinking about the cloud interms of services it provides rather than the infrastructure benefits?

    Thanks
    Ankit
    ScaleGrid (http://www.scalegrid.net)

    • Craig says:

      Hard to say to that level of granularity, Ankit. I created a graph about three years ago in which I speculated that SaaS+PaaS would supersede IaaS in all its forms around 2018, for whatever reasons. Here it is:

      Trajectory of Computing Utilitiy Models (from 2009)

      I think this chart is still fairly accurate – at the time I thought it may have been too aggressive and that the transition might take much longer. However, it may be too conservative. Dawning realization about the many benefits of cloud services as services (to your point) may indeed be one of the reasons for this acceleration. I believe another one is the poor economy, which pushes many organizations to a pay-as-you-go (operating expense) model for consuming IT because of the agility it affords.

      • Ankit Bhatia says:

        Great thanks for the reply Craig.

        Just out of curiosity, what kind of IT enterprises (Financial, Energy, etc) are you starting to think on the SaaS level and spending money accordingly?

        • Craig says:

          If I follow the question, you’re asking which of these verticals I think will have public SaaS offerings earlier? The low hanging fruit is in the commodity software, especially collaboration like e-mail, VoIP, etc. Industry specific software follows more slowly, and I don’t have a good feel for which industries will “go first.” There’s a balance of need to customize, achieve compliance objectives, and a large enough target addressable market for a SaaS app which must be satisfied to make a viable business for an ISV. Non-differentiating industry specific software is more likely to be outsourced as SaaS subscriptions. Then there are home-grown apps that are specific to the company and can be considered trade secret, or even private IP. Those will be the last to go, and I could see the case for private PaaS made for them.