Cloud Computing Economics

In my 27th May post I responded to a thought provoking article by Bernard Golden stating that “CIOs are not Business Leaders”.

We exchanged details and I had the good fortune to meet with Bernard this week in London.

Bernard is one of the “Rock Stars” of Cloud Computing and has recently joined enStratus as its new Vice President of Enterprise Solutions.

“In this new role, Bernard will help enStratus customers leverage the cloud and build best-practice operations based on the enStratus cloud management platform. Bernard brings vast experience working with CIOs around the world to incorporate new IT technologies and meet their business goals”.

We discussed various Cloud topics and I would like to focus on two themes.

Cloud Economics

Mark Teter, CTO at Advanced Systems Group, discusses the economics of cloud computing today.

Cloud Providers have a Chinese Menu of charges

What is your Total Cost of Assets?

Substituting a one time Capex model for a Re-ocurring Opex model

Divorce is expensive from a Cloud Provider

“Recently, ASG conducted a detailed financial analysis of three cloud computing solutions:

1) public cloud from Amazon EC2;

2) purchased private cloud infrastructure; and,

3) a leased private cloud infrastructure. Here’s what we found:

Based on our analysis, a private cloud computing solution whether leased or purchased would seem the way to go. In addition to the financial benefits, we feel that there’s a propensity for additional flexibility and greater uptime.

This analysis shows a $513,295 cumulative cost savings over three years for the private cloud purchase versus the public cloud option. The private cloud lease saved $489,874 versus the public cloud option over the same three years”.

The Truth About Cloud Economics

By Drue Reeves and Daryl Plummer of Gartner – LINK to full HBR article

“For companies, cloud computing’s new economic model stands in stark contrast to the traditional economic model of IT where we buy technology from a vendor as a capital investment and continue to invest in maintaining and servicing it over time. Traditionally, much of the money allocated to technology has been locked away in capital expense allocations used for buying physical goods. However, cloud services are just that, a service, and require reallocating money to operating expense budgets”.

New Delivery Model

Verizon offers customers guarantees about how fast data will travel between one cloud and the other. Verizon bought Terremark in 2011 to competes with providers such as Savvis or Rackspace.  This short video takes a creative approach to exploring how Verizon and its Terremark IT services delivery arm are fundamentally changing how businesses and consumers will access content.

The Cloud is Democratizing Technology

The Network is going to evolve into an IT Platform

Must be able to Deliver Metered Billed It Services

So the Cloud Computing Economic model is compelling:

  • No initial capital spend required
  • A flexible TCO model for service provision can be lower (typically in the short term)
  • Good way to align and scale “technical capacity” with “business demand” (e.g. Xmas trading, Summer trading, Financial Period end)

Senior Business Stakeholders are investigating how, when and what to migrate to the Cloud without compromising security and regulatory requirements.

The Business needs to have transparency in order to evaluate whether it is buying the right cloud services and managing them in the right way.

There are many companies providing advisory services however the Vendors tend to sell the benefits of their cloud enterprise solutions [e.g. IBM SmartCloud, Citrix CloudStack, SAVVIS Symphony] and typically ignore the radical set of new people and process challenges.


As a Service Management Practitioner I believe there is a gap in the market which I am calling  CloudSM – Cloud Service Management is typically a managed service or a dedicated on-premise private solution.

The Cloud Service Management provider is accountable for end-to-end governance and delivers key process capabilities including orchestration, service provisioning, automated workflows, monitoring and metering.

External managed Cloud Service Providers have the people know how and mature processes to be more compliant than internal IT shops.  In addition they will definitely deliver CAPEX and OPEX savings that can be re-invested in enabling Business change.  

Welcome to the new world of Cloud Service Management that is required to manage the New Delivery Models.


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