Global Analyst Insights by Rene Buest

Cloud Computing: It is about agility and flexibility and secondarily about the costs

By on December 14, 2012 in Analysis with 0 Comments

The German Computerwoche discussed in their article “How much is the Cloud” the costs of cloud computing. In this case, the piece focuses on the topic of software-as-a-Service (SaaS) and does not consider the bandwidth of the cloud area. The general result of the article is, driving an on-premise solution for five years is cheaper than using cloud services in the same period. This conclusion is of course not surprising. Investing vigorously once and use my purchased resources over a very long period without renewing them I’m going definitely cheaper than using a SaaS model, where I pay monthly or annual contributions. But what is not noted, I always hang behind the current trends and above all never use the latest software versions. Because cloud computing is secondary about cost and primarily about the agility and flexibility a company wins with it.

Cloud Computing is necessarily not cheaper

The article includes some analysts statement e.g. from Gartner as well. Their conclusion is, that SaaS “… can be cheaper over the first five years of on-premise operations.” Therefore, a long-term view and comparison of on-premise and cloud computing is recommended. This indicates that after a few years the break even is reached and then the on-premise solutions have significant cost advantages. Nicholas Krasser, Board member of Pentos AG, says: “The license costs in SaaS mode are from the sixth or seventh year definitely higher than the amortized cost of the on-premise licenses and servers and the ongoing operation.”

Mr. Krasser’s statement of course is right. As I mentioned above, it is a very simple calculation. If I initially invest a large sum in software licenses and let my employees working over six to seven years with outdated software versions, of course, I save in the long term. The situation is similar with hardware. But am I able to make my employees happy and productive with that strategy?

With a SaaS solution you invest on a monthly or yearly basis in the required software and of course at the same time you pay for innovation, updates, security fixes, new releases etc. That should not be forgotten. In addition, I get more flexibility to introduce a new SaaS solution quickly, without long-term investment in licenses.

Cloud computing makes the IT infrastructure more flexible

The foundation of cloud computing is the consolidation of hardware resources based on virtualization. This allows companies to reduce up to 40 percent of their total costs in the own data center. Singularly, 25 to 30 percent of these savings fall to the lower power consumption and investment for cooling systems. This allows the target of a “Green IT” pursue as well. Traditional data centers had to be construed strongly over dimensioned to provide sufficient IT resources even during peak periods. Throughout the year but only 20 percent of this capacity is needed. The remaining 80 percent are unproductive.

Because of virtualization, the design of a data center is no longer sent to the maximum need of the anticipated demand. With the scalability of cloud computing, the resources are automated and flexible provided to the relevant business areas. Following the resources are shut down again. This operational efficiency leads to 30 percent cost savings.

In short, cloud computing can maximize the economies of scale and improve resource utilization of the entire IT infrastructure.

Cloud computing improves the agility of the entire company

Cloud Computing optimizes all technology processes and improves efficiency. It also reduces access to resources and increases the ability to innovate. Employees can access to information and applications more quickly, enabling them to analyze information summarily and immediately make decisions. A location-independent access to the data can also increase the productivity of each employee.

Cloud computing also ensures an optimized operation of the IT infrastructure, making it possible to compensate for peak times convenient and timely manner. Unexpected successful advertising campaigns, monthly and annual or seasonal influences may therefore be addressed without long term investments in costly hardware resources. The scalability of the cloud automatically (after manual configuration) adjusts the needed resources and provides them. This can be computing power, storage or applications.

It’s the same with the ability to innovate the enterprise. Any new initiative requires resources. Personnel as well as the supporting IT in the background. The cloud reduces the evaluation of new ideas and the time-to-market by the necessary IT resources are available on-demand.

Furthermore cloud computing promotes a better collaboration between employees and optimize the coordination with customers and partners. Within the company the cloud ensures a close integration of the employees as well as the processes and systems. This provides a more efficient collaboration. In the external communications with customers and partners the cloud is a platform that allows a seamless interaction.

Innovations must come to the foreground

IT is traditionally regarded as the drag of any business and it seems that this will not change in the era of cloud computing. A cost analysis is important and everyone who does it not makes a mistake. However, with cost-cutting you will not get a competitive advantage. To innovate you have to invest. Companies like Amazon (Amazon Web Services, Amazon Kindle) or Google have shown that impressively. With cloud computing the doors are open to any company also to increase the level of innovation and improve agility. And even the communication between employees, partners and customers can be optimized. Preferably startups and young companies that have built their business models based on the cloud and would not exist without these scalable infrastructures show how this works.

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About the Author

About the Author: Rene Buest is Gartner Analyst covering Infrastructure Services & Digital Operations. Prior to that he was Director of Technology Research at Arago, Senior Analyst and Cloud Practice Lead at Crisp Research, Principal Analyst at New Age Disruption and member of the worldwide Gigaom Research Analyst Network. Rene is considered as top cloud computing analyst in Germany and one of the worldwide top analysts in this area. In addition, he is one of the world’s top cloud computing influencers and belongs to the top 100 cloud computing experts on Twitter and Google+. Since the mid-90s he is focused on the strategic use of information technology in businesses and the IT impact on our society as well as disruptive technologies. Rene Buest is the author of numerous professional technology articles. He regularly writes for well-known IT publications like Computerwoche, CIO Magazin, LANline as well as Silicon.de and is cited in German and international media – including New York Times, Forbes Magazin, Handelsblatt, Frankfurter Allgemeine Zeitung, Wirtschaftswoche, Computerwoche, CIO, Manager Magazin and Harvard Business Manager. Furthermore Rene Buest is speaker and participant of experts rounds. He is founder of CloudUser.de and writes about cloud computing, IT infrastructure, technologies, management and strategies. He holds a diploma in computer engineering from the Hochschule Bremen (Dipl.-Informatiker (FH)) as well as a M.Sc. in IT-Management and Information Systems from the FHDW Paderborn. .

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