Our thoughts on the future of digital innovation and the cloud.
Why you should consider a “cloud first” strategy?
In a previous post, I introduced the concept of “cloud first” as an IT strategy, which means different things to different people that I speak with. Although, in it’s most simple form, “cloud first” means that in any technology decision you make, you should ask yourself why shouldn’t we do this in the cloud? If you put the cloud at the top of every decision that you make, you will be well on your way to getting your IT needs met more cost effectively and in a manner that is able to easily adapt to the ever changing needs of your business.
I will assume that you already know the many benefits of moving to the cloud so this post will not delve into these; however very briefly, these benefits include:
- Lower cost of ownership due to economies of scale and only paying for what you need at any point in time;
- Agility achieved through real-time scalability (up or down);
- Accessibility anywhere anytime no matter where you are, the cloud is accessible with an Internet connection, which has the added benefit of improved collaboration;
- Better resource utilization because you can put your limited IT resources to work on what really adds business value rather than doing mundane operational tasks such as maintaining infrastructure, patching software, or even backing up data.
- Faster pace of software evolution, no longer do you have to wait for large monolithic software releases to get the advantages of feature improvements.
Do you have a cloud strategy?
In order for your company to keep pace with its competition, you would be remise to not be working on your own cloud strategy. If you don’t, you may be getting a call from the CEO asking why you are not already in the cloud or why you don’t have a cloud strategy. CEOs at our clients are already asking their CIOs about their cloud strategy. You have to know the reason is because they are hearing from their industry peers that the cloud is making their companies more efficient, profitable and agile.
In the past, most CEOs wouldn’t think twice about what their IT strategy was (unless the company was a technology company and IT was their competitive advantage). In fact, what they mostly cared about was getting the perceived high cost of IT down because it was only viewed as a cost centre. This has not changed, and is probably the reason why clients are hearing from their CEO in an effort to reduce costs. Although they are right on that point, there are also additional benefits that you get with the cloud which will help you as a CIO or IT senior manager to achieve more with less and deliver more business value.
What could a “cloud first” strategy do for your company? If you were to take a close look at your IT department and analyze where every single dollar is spent, you might be surprised. Do you know what the total cost of ownership is for any of your current on premises assets?
Let’s talk numbers
I hear a common statement from many clients, which is “the cloud is more expensive than doing it ourselves, so it doesn’t make sense to move to the cloud now.” These same clients are bought into and understand all the benefits that the cloud brings, but they can’t rationalize the financial numbers. In these cases, I work through the numbers with the client to understand how they came to their conclusion.
More often than not, these individuals are simply comparing the monthly cost of IaaS (Infrastructure as a Service) and trying to compare that against the cost of buying the server themselves. For example, customer X needs to buy a server with certain specifications and the cost of that server to purchase is $10,000, then they compare that with IaaS monthly subscription costs over a 3 year period and find that the cost is higher than the $10,000 up front investment to buy the server. The big thing to note here is that this is not an apples to apples comparison!
Let me break it down for you, the $10,000 up front purchase price of the server does not reflect the total cost of ownership of the server. In order to run that server, you need a rack and data centre with cooling to put it in, that all costs money. Your counter argument to that may be that you already have a data centre with extra capacity, so there is no marginal cost difference to add a single server. Granted, there is a sunk cost element here that the investment in the data centre may not factor into the equation, but you still have ongoing operating costs to maintain the data centre including people to maintain the cooling systems, UPS, diesel generator and other systems that are required to have a data centre running 24×7.
Also, what if I were to argue that over time you could reduce the size of your data centre, leading to possibly reducing your office space rental footprint? Many corporate data centres are located in high rent districts in order to be close to where the businesses are that use them, so reducing (or even eliminating) your own data centres over time could lead to a significant savings.
That is one side of the argument against buying the server, but you can extend this to look at how much of your IT department resources will be required to manage that server. If you only consider the cost of managing the infrastructure (because the application management costs should be the same in the cloud or on premises), you have costs of server monitoring licenses, network port(s) to connect the server to your corporate network, annual hardware maintenance agreement costs (or paying for your own hardware replacements in the event of a failure). Then there’s also the people cost, your staff has to respond to issues on the server when there are alerts raised, someone has to order and install replacement parts, and so on. There are a lot of hidden costs that are easily forgotten about when considering the total cost of ownership.
Cloud subscription costs account for all of the above mentioned costs, which means you don’t have to worry any hidden operational costs. The cloud providers have become very good at doing all the things that it takes for any company to manage a data centre, and best of all they can spread those costs across thousands of customers so it ultimately costs you less that doing it yourself. Don’t take my word for it, Gartner has studied this in depth and even presented The Financial Case for Moving to the Cloud at a conference in September 2015.
Setting aside the financial discussion for a minute, another argument against buying the server up front is scaling it over time. What if at the end of year one you find the server is too small for the application and you need more compute resources in order to meet the application’s demand than that initial $10,000 server can provide? To address this, you would probably purchase another server (which you have to wait weeks or months to order, rack, configure and commission) and then likely repurpose the now “old” $10,000 server for something else.
In comparison, with IaaS in the cloud, you could simply spin up a new compute instance with the desired specs and turn off the old one, thus only paying for what you need when you need it. In the on premises model, you would still have two years of amortization and maintenance costs remaining on the original server that you purchased plus the costs of purchasing and operating the new one.
Is Cloud more expensive than On-premises?
When you consider all of these factors, is the cloud more expensive than on premises? I have only really touched on the first two benefits of the cloud that I listed earlier in this post (lower cost of ownership and agility). As you can see, the benefits of the cloud quickly begin to add up and the argument for owning servers starts to slip away.
The next time you need to make an IT investment decision, ask yourself why it shouldn’t be done in the cloud. If the argument is that it’s cheaper to do it on premises, then make sure you are being honest with yourself about the true total cost of owning the equipment (in the case of infrastructure only) or other asset and then compare that figure to the cost of running the same thing in the cloud. You might surprise yourself!
At Invero, our clients are learning the benefits of putting the cloud first in all of their decisions. Getting to the cloud is not an all or nothing decision and in many organizations will take many years to fully achieve all the benefits that the cloud has to offer. If you don’t start somewhere, you will never get there. Let us help you start today so that you will be set for the future. Contact us today.