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My Cloud Learning Journey: Part 6.2 “The cloud for each size of business”

HaleyC

 

 

 

large (3).jpgGuest Post by Tim Clayton, Marketing Business Services

I don’t want to be accused of favoritism but I found it absolutely necessary to do a second blog based on my first blog with Owen Rogers, Director of Digital Economics Unit at 451 Research. It was not that I was simply unable to squeeze all the stuff we talked about into one post, the issue was rather that our conversation had two separate strands. The first, which I discussed in my previous blog, was about how cloud economics is not a matter of exact calculations of costs but about the assessment of financial risk. The second part of our conversation was the hot topic of when the cloud makes economic sense for different companies.

What led me to this conversation was something of a “he said, she said” scenario. I’ve talked to half a dozen cloud experts over the course of the last few weeks and there doesn’t seem to be a unified opinion on exactly when each type of cloud solution makes sense. Here are the different opinions I have heard:

1. Size matters

There are those who claim that size is the only real differentiator when it comes to cloud solutions. SMBs will need a public cloud, as it minimizes their CAPEX costs and means they can quickly scale up or cut off the supply when necessary. Bigger companies will need a hybrid solution, with temporary/fluctuating data in the cloud and predictable compute onsite. Enterprises will choose a private cloud almost every time and it will always be cheaper. One of our higher ups in HPE was giving a presentation to us only last week in which she used the terms “small and big baskets”, which Owen himself coined when he developed the Cloud Pricing Index. Our leader’s suggestion was that any enterprise would choose over 90% private cloud with just a small amount in the public option.

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2. Size does matter… but only when you are small

Some believe that the first idea is pretty much on the nose—but only if you are an SMB. There is a lot of sense in small companies avoiding hardware costs and choosing a public cloud offering. However, there is really no set pattern for what solution will be better for larger companies, which is why HPE is focusing on Service Brokering to help people tailor a solution to their own needs.

3, You never can tell

mailbox.jpgThe remaining people I have spoken to felt that there is really no set rule at all for what makes the best solution. Each company does a different type of business, has a unique compute, and unique compliance and legal demands. It is impossible to say up front, based on size or industry, what solution will be best.

4. Private schmivate

A couple of people I have spoken to over the course of my conversations suggest that private cloud is a good solution for some companies now, but that a time will come (and soon!) when public is cheaper across the board. They feel that private cloud is a half-way house on the tech journey.

Basically, for each person I spoke to, I got a totally different opinion on the matter. And that was what originally led me to Owen. Bernard Golden, who I had spoken to early on in my learning journey, told me “Owen is a guy doing some really interesting stuff around cloud economics. He’ll know the answer.”

Lo and behold, he did!

The answer is… everyone is right.

 Let’s go back to those 4 ideas one more time for Owen’s take on them:

1. Size matters

“It is absolutely true that SMBs generally prefer public cloud. Why spend $50,000 on hardware when you can spend 3 cents on a piece of cloud? Small companies are attracted to cloud because they don’t have the capital expenditure. They don’t need that capital clamp and can adapt to changing demands.

“They also have more to risk. For an SMB, $50,000 on servers is a huge investment and a serious hit if thing go wrong. They are saddled with the costs. So they prefer not to take the risk.

“But an enterprise can spend half a million on hardware and not even notice the cost if it fails. They just write it off and forget about it.”

2. Size does matter… but only if you are small

To say that it is cheaper for enterprises to run private cloud is true. But it comes with a caveat. “The problem with hardware is that you need to pay for it whether you are using it or not. There are also maintenance and other costs to factor in,” says Owen. “So, it is cheaper to run a private cloud if you are an enterprise and you can predict your level of compute and run your private cloud at near maximum capacity all of the time. It needs to be efficient. That means that private cloud is cheaper for enterprises if they have done their homework.”

There were a lot of ‘ifs’ in that answer. SMBs may be leaning towards the public cloud for obvious reasons but enterprises need to do the right due diligence to work out what solution will be best for them.

3. You never can tell

“The idea that there is a three-step process from SMB to enterprise, going from public through hybrid to private, is generally sound. However, there will always be exceptions. Some small businesses may have a big, predictable, and stable compute, in which case they could quite easily benefit more from a private cloud. And there are enterprises which may have very intensive seasonal bursts of compute, meaning that they shouldn’t pay to have all that idle hardware that comes with a private cloud but is not being used to capacity,” says Owen.

4. Private schmivate

Whilst I didn’t nail Owen down on this point entirely, he did feel that it was an “interesting” idea. I suppose that the theory is absolutely sound but the proof will come with time. Is the private cloud really just companies raging against the dying of the light? Is the need to have a private cloud only a refusal to let go of what we know and embrace the future for what it will be? I am certainly not qualified to answer, but it is an interesting debate for another time.

 Equally as interesting, however, was my last question for Owen, about why so many experts cannot agree upon such fundamentals of cloud economics and why there is a fear of cloud investment from a lot of companies that that does not apply to traditional IT. Are the economics of cloud so different to those of traditional IT?

“Fundamental economics are the same throughout history,” says Owen “but people have been blindsided by the switch from capital expenditure to operational expenditure.” In essence, we have always paid up front for the things we use, received a physical product, and then utilized it until it was obsolete. “Cloud is still about utility but it is a shift from ‘up front’ to ‘on-demand’ economics. The big issue is the interpretation of value. If you suddenly have more visitors to your website, you should buy more capacity to serve those people and you’ll get sales later,” he continues. However, people are creatures of habit and the ‘on-demand’ paradigm is one that is still a problem for many to come to terms with.

Owen uses the example of Spotify. For him it is obvious that a small monthly payment for a near-limitless amount of music to consume and enjoy on demand is a better investment than a CD. His father disagrees. So does my wife. So do a lot of people I speak to… all of them in the 35+ age group. It is not that these people do not see the value of the new solution; it is just something that is unfamiliar.

Cloud suffers from the same problem at times; it is obviously better but is unfamiliar, and that is why a lot of companies fear making the switch.

I offered my own hypothesis on when this would change*. Owen would not publicly agree with it but we had a good conversation around when the fear of cloud would dissipate. In my own opinion, it will be when the millennials get into the board room. These young people have grown up with everything on demand. To them the idea of buying a physical product when a virtual one will offer you the same or better service at a lower price is just nonsensical.

For now the decisions around cloud are a two-step process: “Do we stay traditional or move to the cloud?” and “If we’ve decided to move to cloud, do we go public, private, hybrid?”

When the millennials get in the board room—perhaps ten years from now—the first question will be obsolete. There are even some of the “private schmivate” school of thought who believe the second will be a thing of the past.

*Dear Readers, this is a red letter day for me. Seven blog posts in to my learning journey and I am at a stage where I could offer a hypothesis to an expert and not be laughed out of the room! It is testament to the patience and good will of everyone who has chatted to me over the course of this series so far. Chris, Christian, Kevin, Bernard, Krish, Owen… I salute you all. We still have two posts to come, both of them fascinating chats, with Sanjay Baronia and Paul Teich, about Big Data and the future of cloud. 

 

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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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