Cloud Computing – Cost vs. Agility (The economic and business benefits of using the cloud)

The following post talks about the current trend of transitioning to cloud infrastructures, in which majority of businesses favor agility offered by the cloud service solutions instead of true costs benefits associated with moving to the cloud. Peter Drucker, an educator, and management consultant once stated: “Profit for a company is like oxygen for a person. If you do not have enough of it, you are out of the game. But if you think your life is about breathing, you are really missing something.” (AZQuotes, 2017).

While the main goals of any business, small or large, is to generate the profit, in my opinion, it should not just be about the profit itself. The business agility is in that sense likely the most important factor of all, because it opens the door to future sustainable profits, by allowing the company to respond to fluctuations in the environment they operate in quickly. The business agility ensures that the momentum is kept intact and vision, as well as business goals, are met.

So, what are the economic and business benefits of using the cloud?

Let’s just start by stating, that the emergence of cloud solutions was likely one of the biggest disruptors to on-premise IT infrastructures in the past decade. It not only introduces the same or better quality for lower cost (a huge deciding factor for any business) but also presents the agility in the form of Flexibility, Adaptability, and Balance. These are the three qualities that every business that wants to assure its long term survival should strive to achieve. The cloud service providers are very much aware of this trend. According to Greer Jr, M. B., “The focus on business agility is a primary driver for the rapid response and flexibility associated with the software delivery models associated with Cloud computing and SaaS.” (Greer, 2009).

It is only natural. To stay competitive, the Cloud Service Providers (CSPs) need to offer cloud solutions that are flexible (responsive to business needs), adaptable (driving innovation) and offer a right balance between security, ease of use and the service cost model. The CSPs recognized the importance of business agility very soon. The most recognized services, such as Amazon AWS that controls over 40% of the cloud market in 2017 were established only 10 years ago.

Figure 1 illustrates the recognized business benefits of the cloud. According to Cameron Coles, Director of Product Marketing at SkyHigh Networks, “Enterprises are gradually divesting from their data centers and moving applications workloads to the public cloud. According to the CSA survey report, in 2016, 60.9% of applications workloads were still in enterprise data centers. By the end of 2017, however, fewer than half (46.2%) will remain there.” (Coles, 2017).

Figure 1 – Cloud Market Share 2017 – (Coles, 2017).

 

What is the return on cloud investment?

Aside, that cloud’s agility offers an enormous competitive advantage to business, especially in times of uncertainty and should always be considered as a primary transition-to-cloud benefit, the cost benefits provided by moving to the cloud are hard to overlook.

The costs associated with running infrastructure on premise are huge. Not only the business will need to pay for the location and building that can house its infrastructure, but then the actual hardware costs, IT staff, maintenance, implementation, customization and also software licenses associated with running applications on premise. The cloud, on the other hand, offers everything ready, the only costs are related to subscription fees and actual application implementation.

According to Brian Zrimsek, research director at Gartner, “Customers can spend up to four times the cost of their software license per year to own & manage their application [on premise]. Ownership costs are often underestimated, in some cases by as much as 70 percent.” (Nassi, Das & Shan, 2007).

One of the best ways to illustrate the difference between cloud and on-premise computing is in Figure 2.

Figure 2 – Cloud Market Share 2017 – (Coles, 2017).

References

Drucker Quotes (2017). Peter Drucker Quote. [online] Available at: http://www.azquotes.com/quote/863677 [Accessed 23 Jul. 2017].

HRzone (2017). What is Business Agility? [online] Available at: https://www.hrzone.com/hr-glossary/what-is-business-agility [Accessed 23 Jul. 2017].

Greer Jr, M. B. (2009). Software as a service inflection point: Using cloud computing to achieve business agility. universe. [Accessed 23 Jul. 2017].

Coles, C. (2017). AWS vs Azure vs Google Cloud Market Share 2017 – Free Report. [online] Available at: https://www.skyhighnetworks.com/cloud-security-blog/microsoft-azure-closes-iaas-adoption-gap-with-amazon-aws/ [Accessed 23 Jul. 2017].

Nassi, I., Das, J., & Shan, M. C. (2007, July). The challenges of application service hosting. In International Conference on Web Engineering (pp. 545-549). Springer, Berlin, Heidelberg.

Prieto P. H. (2017). Cost Accounting for a SaaS solution. [online] Available at: https://www.linkedin.com/pulse/cost-accounting-saas-solution-paul-hart-prieto. [Accessed 23 Jul. 2017].

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