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My Cloud Learning Journey: Part 6.1 Cloud Economics or “Nubes parcus”

HaleyC

 

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Guest Post by, Tim Clayton_Marketing Business Services

 

 

 

 

Before we do this thing, can you do me a favor? Check out this link and spend a minute answering just two simple questions….

 You’re done? Right now I guess you are either feeling pretty pleased with yourself or slightly annoyed.

 So, let us begin…

 Owen Rogers is a proud Welshman who spends his time in the urbane and historic city of Bath inventing modern-day algorithms, such as the Cloud Price Index, that are often as simple and as they are sophisticated. As Director of the Digital Economics Unit at 451 Research, it is Owen’s job to take the complexity of cloud and attempt to pull together all of the knowns and unknowns into calculations that make sense to other people. This is cloud economics (or ‘nubes parcus’ as Google Translator calls it).

But if you are hoping for me to tell you that Owen is the guy who can put a dollar figure on your cloud investment, prepare yourself right now for disappointment. I was expecting Owen to describe to me all the factors he feeds into some patented cloud number-cruncher to come out with a neat figure that he gives to businesses to let them know to the exact cent how much they will be saving with cloud. Unfortunately, it doesn’t work that way. Cloud economics is really about risk literacy. It is a matter of looking at the factors surrounding you and making a decision about how best to survive and thrive.

Like Owen, I lived in Bath for several years. The beating heart of the city is the Roman baths where people bathed and frolicked centuries ago. There would not have been much risk in life in Somerset two millennia ago, but existence would have been very different in another Roman town on the shores of the Mediterranean Sea.

Pompeii (which, like, Bath is now a UNESCO World Heritage Site swamped with tourists) is often described as having been unexpectedly buried by a volcanic eruption that came out of nowhere. It was so sudden and violent that the people were interred in ash where they stood. How could they possibly have seen it coming?

Of course, the history is perhaps more revealing of the human mindset than the myth. The great blast that took place in 79 AD was a tragedy but was it really unforeseeable? Let’s look at the facts...

Town built at the foot of a bloody great volcano: check.

Major quake twenty years prior to the final event: check.

Two subsequent decades of almost constant minor volcanic activity: check.

The truth is, the victims buried alive were not those who ‘lived’ in Pompeii, they were those who ‘stayed’. During the decades leading up to the eruption in 79 AD, the population of the town dropped dramatically as residents assessed the risk with each rumble from above. Many made the decision to leave. Perhaps they settled as farmers or moved to Rome; it is unlikely that they sought out another town at the foot of a volcano.

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I am not saying that those who do not choose to move to the cloud are necessarily like the 11,000 who refused to leave and probably kept saying, “This place is home; I’m comfortable, it’s all I know.” As humans we very often know the risks, we see the smoking caldera, and yet we are still unsure whether to stay or go. Cloud economics is about presenting that risk to people in ways they can understand.

What else might the Romans of Pompeii or ancient Bath have said?

 

AURIBUS TENEO LUPUM

“Hold the wolf by the ears”

A beautiful phrase, telling us that in some situations, no matter what you do, there is risk involved. It is not straight-forward enough to say that staying with traditional IT is like refusing to flee Pompeii and that there is no risk in the cloud. “The cloud is about getting value for your risk,” Owen says.

However, people can be notoriously bad at understanding risks. That two-question test at the beginning of this post may seem innocuous but it is a fundamental and grave issue that so few people are able to calculate risks accurately and make the better decision. When you add emotional or habitual attachment to the mix, it can become even more of a problem. Even someone who understands that cloud may be a safer option for their business—from an economic and security point of view—can still feel attached to the silver boxes humming quietly in the corner.

“For me, it is a case of making them see the bigger risk. A company may say that they have been well served by the same provider and the same IT systems for a decade and that they are happy with it,” explains Owen. “But are they totally exposed if that provider goes bankrupt? Will they be totally against the wall if some random economic crisis sweeps through their sector? It is impossible to put a dollar figure on the cost savings of cloud versus traditional IT but we can talk about ‘value for your risk’. We can calculate the potential cost of IT failure. If I could write a figure on a piece of paper and say to a business ‘Ten billion. That is what you’ll lose if the worst case scenario happens.’ I think they would suddenly have a better understanding of their exposure. That kind of figure leads people to make a better decision.”

 CUI BONO?

“Who benefits”

So why is it so hard to put a value on the cost of a cloud solution? Why can’t we just make a spreadsheet with the costs of cloud versus current IT infrastructures and give people a dollar figure?

“There are two main issues with calculating the cost of IT. The first is that the IT department have traditionally held the keys to their own budget,” says Owen. What this means is that people like myself—who understand something about IT but don’t like to hear all the gory details—are likely to just give the department the money they need and ask no questions about how exactly it is spent. We don’t get precise breakdowns of the expenditure on cabling, monitors, fans, servers, storage, and so on. The spreadsheet has a column that says “IT stuff” and that is not enough of a level of granularity for calculating a switch to cloud.

Owen also thinks that IT is not able to easily prove its own worth. “It is so difficult to track the uplift and value of IT. So much is unquantifiable.” How the organization is benefitting from its IT department is often a matter of a general supposition that it is doing a good job, rather than a hard measure of the actual value. As Owen says, you cannot easily calculate how the speed of a server earns money for your business or how much the traffic on the website is affecting the bottom line.

laptop.jpgWhen moving to cloud, the calculations could hypothetically become absurd in their intricacy. How do you calculate the value of freed up floor space that once housed servers but now has desks for three telemarketers? Are we even able to calculate the exact amount the marketers make or cost to the company?

I’m sure that there will be those of you reading who say “I’ve got an algorithm for all of this,” but I personally agree with Owen that so many things in the modern business world have a perceived value rather than an actual quantifiable amount assigned to them. As he says, “How much is it worth to Coca-Cola to keep everything red? I’m sure they don’t even know, but they are aware that it has value so they keep on doing it.”

The key to a cloud decision is therefore to assess the exposure, estimate the current costs as best one can, and then pick a solution that seems to be at the right price. But beware…

 EX NIHILO NIHIL FIT

“Nothing comes from nothing”

Many people go through the two key stages of that decision process and choose a cloud option that they are now convinced will be cheaper than their current IT infrastructure—only to find themselves paying more than before.

“It is Jevon’s paradox,” explains Owen. “Companies don’t always observe a drop in expenditure because they see the benefit of the new solution and start consuming more. They suddenly have all these great new capabilities and they start using more IT applications and resources than ever, because they have new potential.”

pressure.jpgThere is also the issue that there can be a complexity associated with cloud costs that is not comparable with traditional IT. What looks like a simple monthly payment may come with a whole host of incrementals and other bills (much the same as a mobile phone tariff has a fixed price but the roaming and SMS costs mean you always pay more than you thought it would be when you signed on the dotted line). That simple cloud payment becomes a lot more complex as you start utilizing the new cloud for all these wonderful new things and need to add more capabilities.

However, this does not, to my mind, mean that companies are not saving money—even if they are spending the same or even more with their new solutions. That extra consumption means more work is being done and more innovation is happening. These can generate profit, meaning more accumulation for the speculation.

The risk of spending more with cloud is therefore, as the Romans would say, brutum fulmen, an empty threat or ‘senseless thunderbolt’…

 In my second blog post about my chat with Owen Rogers, we will look in some detail at how companies can calculate the solution that works for them and talk about how resistance to change will one day fade away.

About the Author

HaleyC

I manage the HPE Helion social media brand accounts promoting the enterprise cloud solutions at HPE for hybrid, public, and private clouds.I have put my toes in the ocean of cloud evangelism for the enterprise IT industry. But my expertise is in Social Media and Digital Marketing.

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