“Over the long term, absent of other barriers, economics always win.”
– Andy Bechtolsheim, co-founder of Sun Microsystems.
Bechtolsheim made this announcement when presenting on the potential of cloud computing, where he stated that ultimately, it will be economics that dictates worldwide adoption of this new technology. And as far as economics are concerned, cloud computing is right at the top in its ability to cut costs.
When Bechtolsheim speaks, I would suggest we listen. After all, not only was he a co-founder of one of the defining IT companies of the 20th century (Sun Microsystems), he also realized the true potential of one of the giants of the 21st century long before others did, when he invested in Google in 1998. As we can see, Bechtolsheim has a history of winning bets to back his assertions.
What Bechtolsheim says about cloud computing is nothing new. Almost any article glorifying cloud computing extols its cost-cutting virtues, much in the same way any article vilifying the technology mentions its supposed security drawbacks. In this article, we will not restrict ourselves to not merely mentioning cloud computing’s ability to save you money, but how it can be actually achieved.
1. Economies of scale – Cloud computing companies can utilize economies of scale to offer cheaper rates to your business. In other words, the Service Providers can buy IT equipment in bulk to lower unit acquisition costs, and some of these cost savings are passed on to their customers. Consequently, this price is much lower than what you would pay to buy similar equipment from the retail market.
2. Pay as you use – Cloud computing companies operate on a pay-as-you-use model, or in other words, a demand-only model. As a business availing of cloud computing services, you only pay for the services you require and use. This works out to be much cheaper than acquiring equipment you hardly use.
3. Running costs – Often, running costs comprise a big chunk of the annual IT budget. They include physical maintenance, upgrades, personnel salaries, etc. By shifting to cloud computing, you are free of such expenses.
4. Operational costs vs Investment costs – When you acquire expensive equipment, that’s considered a capital expenditure, and a big one at that. Also, your acquisition depreciates over time. With cloud computing, your one-time expense is spread across several operational cycles, becoming part of operational costs. As any corporate finance professional will tell you, this is a much better alternative. Factor in the time value of money, and the balance shifts even more towards cloud computing.
Cloud computing’s ability to save money is recognized by the very people who have the greatest stake in IT costs – the Chief Information Officers (CIOs). According to a Gartner study, cloud computing is the No.1 technology priority in 2011 for CIOs worldwide.
“Cloud topped technology priorities globally, and this was confirmed when we asked how soon more than half of their business transactions would be conducted over IT platforms in the cloud,” said Dave Aron, distinguished analyst for CIO research at Gartner. As per the study, from a current figure of 3%, as many as 43% of the CIOs expect their companies to get on the cloud within the next four years. And this, in spite of IT budgets that are expected to remain largely flat.
“CIOs and IT have been boxed in between modest budget growth and growing legacy requirements,” said Mark McDonald, group vice president and head of research for Gartner Executive Programs. “New lighter-weight technologies – such as cloud computing, software as a service (SaaS), and social networks – and IT models enable the CIO to redefine IT, giving it a greater focus on growth and strategic impact. These are two things that are missing from many organizations.”
In conclusion, cloud computing can save you big money, and it is this particular point that will drive its growth in future.
After all, “It’s all about the money, honey.”
By Sourya Biswas
