‘Caveat emptor’ (Latin translation: “Let the buyer beware”) is good advice for every CIO. The CIO is a steward of company funds and is expected to make decisions in the best interests (see profitability) of their company. Sales representatives from cloud providers are trying to gain sales, as their primary loyalty is the profitability of their company – not yours. So, how can we, as CIOs, be sure there is a mutually beneficial business transaction when working with cloud sales representatives?
First, let’s observe the current hype about the cloud. You would think from the press that on-premise computing is a relic of the last generation. Whether it is for office software, server processing, ERPs, business continuity, or a good cup of coffee, it’s all in the cloud now. That could be really valuable if there was some technological breakthrough that is only available through cloud providers. There’s not. The cloud is really just somebody else’s computers (which are commercially available for everyone to buy).
The idea of having a third party doing computing for a company is not a new concept. The original incarnation was called a “Service Bureau”. IBM was a participant offering companies tabulating services in 1932. And in 1962, EDS was launched which grew into a multi-billion dollar company. In 2007, Amazon was one of the early cloud providers which allowed the company to leverage its excess capacity (capability it needed for the holiday season peaks). As others jumped on the bandwagon it became a lucrative model for service providers. And for software companies it became an opportunity too good to ignore. The ability to no longer have to convince companies to pay maintenance fees and lock “subscribers” into their software creates a steady revenue stream with the cost of switching the software prohibitively expensive.
And then there is the sales pitch from cloud providers of not having to use capital funds (CapEx) and instead pay operating expenses (OpEx) as a subscription model. That financial discussion of CapEx or OpEx is not just for I.T. costs. CFOs look at leases and asset life from the lens of the company’s best financial interests. I have had CIOs tell me that they like having steady period expenses, like leasing PCs, etc. so they don’t have to go argue with the CFO for capital funds to get to the next generation of technology. That is being irresponsible to the company. The spending decision should be made on its own merits to the company. And if the CIO can squeeze a bit more useful life out of a PC, server, or switch, they are adding value to the company. It is the same discipline that other parts of the business abide by, especially manufacturing.
So let’s get to it. The days of having large rooms (even dedicated buildings) housing computers, disc storage, report bursting machines, massive HVAC and power being supported by computer operations staff for a single company are so last generation. Hyperconvergence has become a game changer. At my company, we upgraded our data center computing capacity. We needed 200 virtual machines running the business with one Systems Engineer (no operations personnel or contractors) to support the environment. Comparing Azure versus our Hyperconvergence purchase over a six year time horizon (stretching more out of the asset), the Total Cost of Ownership (TCO) was over twice as expensive to run the virtual machines in the cloud at today’s prices. That’s without calculating any cost increases in the cloud contract over time. During Microsoft’s earnings call this past January, CTO Amy Hood stated, “As a reminder, strong performance in larger, long-term Azure contracts, Azure consumption overages, and pay-as-you-go contracts will drive bookings growth and in-period revenue but will have a limited impact on unearned revenue”. A bit of advice – focus on the Azure consumption overages in that statement as an indicator of things to come if it hasn’t been accounted for during contract negotiations.
In IDC’s 2018 Cloud and AI Adoption Survey, they wrote, “A whopping 80 percent of the 400 IT decision-makers who participated said their organization has migrated either applications or data that were primarily part of a public cloud environment to an on-premises or private cloud solution in the last year. In addition, respondents said they plan to move 50 percent of their public cloud installed applications to either a private cloud or non-cloud environment over the next two years. The top reason for businesses moving away from public cloud was security, according to the IDC report. The other top reasons respondents cited for moving off public cloud were performance, cost and control, according to the survey…customers are moving away from the public cloud after realizing cost benefits and the security advantage of an on-premises solution powered by software-defined technologies such as hyper-converged infrastructure”.
As is often the case in life, neither extreme will work. There is software, such as Salesforce.com, that is only available in the cloud. If you are an entrepreneur just starting a business, using the cloud enables the start-up faster. If you do not have established business continuity capability for event recovery, the cloud may be the best choice. The key is to focus on the use case which is the best solution for your specific business.
And cloud software providers are making it much easier to connect with them and on-premise systems (like ERP) reducing the headache of the “middleware” layer, enabling a hybrid environment.
We are a hybrid shop. Finding the right balance of capability to serve the business, as measured by TCO, is our focus on-premise and in the cloud.
Final thought – its 2am, do you know where your data is?