June 27, 2016
The Move from CapEx to OpEx in the Cloud
By Deirdre Mahon | CMO | Cloud Cruiser
By all accounts, cloud is economically more efficient than traditional on premise services delivery. But like most things in life, the devil is in the details and for something as complex as delivering diverse tech services – from IaaS to PaaS and SaaS – it’s absolutely an “it depends” kind of answer. Owen Rogers of 451 Research has actually made it a full time job to research and analyze the true cost of cloud. He calls the product of his research the Cloud Price Index, and because it is such a complex topic (albeit just one aspect of cloud), he is helping to educate the masses on private vs. public cloud, which vendor attributes affect prices, including what type of service, and what geographic regions offer what, based on his “basket of goods” services mix. It is rather surprising how much cloud prices differ around the world. As Owen points out, there is a lot of room for growth and opportunity before we can truly claim “IaaS is a commodity”.
I recently talked to one of our customers who shared that they had conducted a deep level of research before ever taking on cloud services delivery. Covering all the bases, they conducted research on which types of workloads, which service providers, and the anticipated demand from the business. They even went so far as to diversify their assets by leveraging different cloud vendors to de-risk and make sure to avoid any possible security issues, as they are in the retail sector — and so is Amazon. I also chatted with a large Fortune 500 organization, who shared with me the challenges around thinking Opex when planning and managing spend, which is very different from the way Capex is treated on their financial books and by their CFO.
It’s not like you can easily flip a switch and just start tracking Opex instead and easily apportion it correctly to all users across the business. Amortizing assets across their lifecycle is a common accounting practice and so the questions become “how do you amortize cloud assets?” or “how do you even account for them?” let alone “show return on that level of investment”. So, if you have $1m annual spend on cloud services growing at an annual rate of 120%, how do you show returns on those investments in years one, two and three? The IT professional and business user probably care less than the head of finance about such things, but somehow they need to figure this out together. After all, it’s an asset for the betterment of the entire business.
I was looking back at some older research and came across a Gartner report which was published in April 2015, titled: “The Financial Case for Moving to the Cloud.” While only a year old, it seems like the dark ages when you consider the speed of cloud. This extracted point struck me as very short-sighted: “The uptake of cloud as a solution has not been as rapid as first anticipated, in part because of the confusion created around the financial benefits. While it’s said to be cheaper than on-premises, it gets push-back from the finance function because it will increase operating expenditure (opex) costs.” The report goes on to say, “the finance business partner only reviews the main headline of ’cloud services increase opex costs,’ and looks no further. IT departments let finance take the lead on this decision, and this stalemate is rarely broken.” The reality, at least for me, is quite different. I believe the business and IT have charged ahead and moved workloads to the cloud at a faster pace than anyone could have imagined. As far as I can tell, the faster time to value and competitive advantages have outweighed the concerns around growing opex costs and inability to prove ROI on an asset the business doesn’t own. Many refer to this as technology at the speed of finance. If, in fact, business users are in the driver’s seat and can figure out a way to work with IT collaboratively, finance will be left behind — probably left poring over spreadsheets, reports pulled out of their SAP financials, and grinding through millions of rows of AWS extracted invoices, trying to make sense of what is going on.
So that brings me to ask this fundamental question. If most organizations take the time to conduct research on the merits of moving to the cloud (financial and otherwise) and if they take painstaking hours and weeks to compare different providers, then why would they not institutionalize a way to meter and measure as they go? Do they just conclude that “cloud is cheaper than on premise, we can get to end-of-job faster and keep our business users happy, so let’s go”? The reality is that you need to continually measure. If you are not doing so in a rigorous way, you simply have no way to conduct an easy conversation with finance.
Just imagine the end of month or end of quarter meeting with business, IT and finance all at the table, reviewing the same reports, accurate and reliable and concluding that cloud services are meeting the needs of the business and delivery is being done in the most cost efficient way. The hours of head-scratching or the weeks of digging through old bills and trying to reconcile them with accounting systems are gone. Everyone is on the same page and decisions are made at lightning speed.
I believe Gartner and other research firms need to educate the market on the criticality and merits of tracking cloud as you go. It’s insane not to! Looking back at the research piece published one short year ago, item #4 in the diagram, “Metered by Use”, needs its own set of recommendations and research to educate users on exactly how to do this. I know one thing is for sure – your spreadsheet and traditional accounting systems won’t get the job done.
So do yourself and your finance colleagues a favor and ease their pain. Introduce them to a cloud analytics SaaS application that meters and manages all your cloud spend. That will get everyone on the same page and get clear answers to rather than “it depends.” Better measurement means better management.
View our on-demand webcast Cloud…We Spent What?!? to learn how cloud analytics can help business and finance professionals better manage their cloud spend and effortlessly demonstrate cloud’s value to the business.
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