Cloud Economics 101 – Five Dollars and Cents Reasons to Move

If you are an IT pro, you likely know the cloud is an economic boon. If you still need to convince the boss, here are five surefire reasons the cloud wins the economic argument.

Doing the Cloud Math – the Cloud Done RIGHT is ALWAYS Cheaper

Cloud fundamentals say that the cloud should be less expensive, and substantially less expensive – but only if the cloud is done right. There are cases, especially in earlier years, where IT moved to the cloud to escape the rigidity and unpredictability of capital expenses and switch to the more economically sound operating expense (OpEx) model. Once the move was made, some of these shops got hit with rising and unexpected cloud costs as their workloads increased.

Today that simply shouldn’t happen – if your cloud infrastructure is well planned and well managed. In fact, your new cloud infrastructure can be precisely sized to meet your current needs and expanded rationally as your number of employees, the volume of applications you run, and data processed rises.

Many of your current costs will simply go away as you move to the cloud. Staff required to manage on-premises infrastructure can be reassigned to tasks that offer strategic value. Real estate devoted to server rooms and data centers can be used for other purposes, or your office footprint can be downsized. Servers and on-premises storage can be decommissioned or downsized to fit narrower uses. Your electric bills will go down dramatically. The money you spend on security software can be realigned to fit your new cloud model. Much of your networking infrastructure aimed at connecting your servers and storage devices will no longer be needed, and the networking budget targeted at pure bandwidth to the outside world giving your users a far more satisfying online experience and your networking staff far less to manage.

What Happens if You Don’t Migrate (Opportunity Costs or Worse)

All the hot new software is coming out for the cloud. This matters a great deal to your company’s future. Looking at the history of computing, software changes everything. Think of how VisiCalc, the first spreadsheet for personal computers, launched the PC revolution (explosion really) and how much PC productivity applications such as databases and word processors utterly changed the world.

Companies that embraced this type of new technology flourished, while their competitors languished and quite often disappeared. The same thing is now happening with cloud-based software. Think of collaboration, which today is barely possible without the cloud, or advanced data analytics where most of the leading-edge solutions run in the cloud, and often bring together data repositories that either sit entirely in the cloud or offer a macro or meta view of your data through a cloud data analytics application.

In the short term there are opportunity costs, meaning money you lose by not using leading edge cloud solutions and taking advantage of new services that leverage the dynamic economics of cloud computing. In the longer run, and it might not really take that long, not leveraging the cloud can make your company a complete has-been. Companies that don’t keep pace with technology quite simply go out of business.

The Colocation Issue

Colocation (colo) is a big economic issue. You might not have your IT infrastructure hosted within your own real estate, and instead rely upon a colo provider to house this gear. The colo, in essence, is like having your own on-premises infrastructure – just located in a different building owned by a different company and connecting to the outside through pipes you also lease.

The economics of colocation are pretty much as bad as purely on-premises. The only advantage is the convenience, a few less management headaches, and less of a real estate burden. The smart move is migrating to a public or private cloud and having a powerful and productive business growth engine.

Rationalizing VM Sprawl

Virtual machines are very easy to spin up since you don’t need to buy and configure new hardware such as servers and their related network connections since the server is already on the network. Storage is generally available and connected as well. The result is often an overabundance of virtual machines, not all of which are useful, and many of which are done under IT’s nose and don’t have proper licensing or security.

All these VMs waste IT resources and represents a compliance fine waiting to happen.

As you go through the exercise of evaluating your on-premises infrastructure, you will likely find an excess of virtual machines – perhaps a shocking number of them. There are two issues here. One is that unneeded or unapproved virtual machines do not have to move over (and most probably shouldn’t) to the cloud when you migrate – so they won’t cost a cent. Aside from that, these virtual machines can be decommissioned, or the ones that are truly needed and useful can now come under IT control. Understanding and controlling virtual machine sprawl is one of the powerful but unforeseen benefits of a cloud cost analysis.

Doing Away with Refresh Cycles

Buying IT infrastructure and having to either create a refresh cycle based upon its useful life, or have one contractually forced upon you, isn’t just a hassle, it is a waste of money. Too often you’re buying the wrong-size device that begins to age as soon as it is installed and becomes obsolete before you can afford to replace it. Not only locked in and dealing with financial complexity – with this approach your IT is the opposite of agile.

With on-premises based computing, different pieces of your infrastructure are on separate refresh and amortization schedules. You’ll have some equipment that is going to be at the end of life in two years, others in three years, and older bits that need a refresh in six months. How do you deal with that kind of complexity?

If something is currently still being depreciated, and has two more years left, ACTS can show those costs going out to two years. That will drive decisions such as instead of a refresh, you may move it to cloud.

The ACTS Cloud Business Cost Model collects the age of key equipment, date of scheduled refresh, and costs to operate that gear between now and the refresh.

In many cases it makes sense to migrate when the refresh is due. However, there are times where it isn’t smart to wait. How dramatic are the savings and do they outweigh the penalty for decommissioning equipment early? What are the penalties for breaking a lease contract early, and how does that compare to the savings you get from moving that to the cloud? Is there a get out early clause and what are the consequences of early termination? All that will factor into the business case.

If there is a one-time penalty, but it can get you out of a three-year contract and it’s going to save you an enormous amount, then the one-time penalties are a worthwhile investment to break the contract.

Large scale migrations to the cloud, needless to say, don’t happen quickly. If you have a large environment, a cloud migration could be an 18 months to two-year endeavor. You want to map that so you can make a rational decision and do the necessary planning.

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Robert Levings

Senior Project Manager, Cloud Secure Infrastructure, ACTS

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