Cloud economics: IDC webinar

I’m waiting for the start of an IDC open webinar on the economics of Cloud. Ten tips to maximise organisational ROI. What am I expecting? First, the chance to assess a couple of IDC’s analysts in this area. Second, I’m expecting the definition of Cloud to be the one that treats cloud services as a version of either off-premise outsourcing or in-house shared provisioning. Notes as we go along.

IT Cloud Decision Economics is a new research area for IDC. They believe that 2011 will be the year when cloud deployments really take off (public, private or hybrid). IDC are looking for input to their research, rather than providing answers.

They see the shift for IT as being away from cost focus, and towards the end user service (and its provisioning) in a very packaged way.

They see the primary corporate focus at the moment as being on private cloud, which of course (my comment) plays to corporate security/control paranoia. Business calculations will vary according to the mix of public/private and whether it’s software, platform (to develop/deploy) or infrastructure that’s being deployed in the cloud.

IT investments, in parallel with other investments, are being made to add capability in mature economies, but capacity in the developing ones. Today’s external economic conditions accelerate “capital efficient” IT strategies: reducing cost, in developed economies, or adding capacity, in developing ones. Cloud matches both these scenarios.

What I’m seeing is a different perspective on IT investment: not from the inside of the enterprise IT department out, but from the outside – macroeconomics – inward. This is providing a context for ROI examination. And there’s a different perspective on what ROI is about. The ROI perspective, prior to deployment, forewhadows what the experience will be in the medium short term: I rationalise this by saying that the perspective reflected in an ROI case is indicative of the approach the organisation will take to the deployment, so a disconnect would be surprising.

There are some surprising results from preliminary research. Only about 1% of cost savings came from infrastructure. About a third is from operations staff – trouble-shooting and enhancement falls.

But over half is from application development improvements (and staffing). Largely this is because the conventional costs here are very largely from handling exceptions: with externally determined stuff, exceptions don’t happen. And about an eighth is from faster delivery (and business time to market). So the most expected cloud benefit – better use of infrastructure – is not by a very long way where the best benefits are realised. Standardisation drives savings.

And, as a consequence of this, it perhaps isn’t the infrastructure teams that should have the lead in moves to cloud services … The ROI model is very different, and perhaps ten times more complex, than that for conventional in-house services. It challenges established governance models for IT services: not just how we do governance, but what we govern! Hybrid Cloud, in particular, challenges conventional systems management wisdom.

And the user community will expect the cost, accessibility and speed of response they see from public cloud services. The existing excuses (security, quality of service, assurability etc) which are used to justify staying private will not work any more! Cloud-scale services will need to be operated with automation, standardisation, scaleability (which means standardisation!) and visibility to radically shift the support-staff-to-service ratios towards the credit-card costs of the public cloud. You need the technologies to achieve the economics.

FInally, make sure your plans are flexible enough to respond to new initiatives and technologies from the vendors/providers. With the capital initiatives being taken in that space, this is essential.

And my response to the presenters and presentation? Good discussion, easy to follow, and with a distinctive approach well worth listening to.

Links:
• IDC webcast replay (available shortly after the broadcast): IT Cloud Decision Economics: Ten Tips To Maximize Your Organization’s Cloud ROI, 18 Nov 2010 (you may need to register to gain access)
• Webcast slides download (PDF)
• Results of this research have not yet been published, but IDC clients should watch for them within the Cloud Decision Economics research programme.
• IDC analyst community (blogs, open access. This has also been added to the Analyst Blogs index under Others)

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