Setting the Record Straight on Cloud Computing ROI
There have been some misleading headlines floating around the mainstream media as of late regarding cloud computing. Articles from the Wall Street Journal (“CIOs Still Waiting for Cloud Investments to Pay Off”) and InfoWorld (“Companies are Still Waiting on their Cloud ROI”) have been stirring up misinformation around the claim that cloud computing has not delivered the ROI it initially promised and that companies have been pulling out, seeking greater cost saving opportunities on premise.
At Cloudticity, we’ve been openly critical of this narrative these past few months, sharing our insight on where these articles went wrong and how to properly engage in a discussion around cloud computing ROI by looking beyond cost savings to other more important measures.
But a new article by David Linthicum in InfoWorld called “Making a New Business Case for Cloud Computing” finally gets it right. In the article he states:
“The most significant value of cloud computing is rarely found in cost savings, although they sometimes do occur; it’s about delivering the more critical business values of agility and speed to innovation.”
To that we say, bravo! We’re glad to hear that the industry is finally getting some clarity here. Looking at the cloud as merely a cost saving solution is to miss the point entirely of what the cloud is and what it delivers.
Five Ways to Assess the Value of Public Cloud
As the InfoWorld article mentions, it was never about cost savings. There are soft values attributed to cloud that are difficult to quantify and measure. But if you take the time to look, that’s where you’ll find the gold.
When evaluating the ROI of your cloud computing program, consider the following areas of transformation.
Speed of innovation and agility
Cloud computing was designed to make it easier for companies to innovate, without having to worry about managing hardware and maintenance of the physical space.
For one, you can test out a new idea upon its conception in the cloud. You can say, “Hmm, I wonder if this would be a good project.” And you can spin up a virtual server for pennies on the dollar to test out your new idea. Then, you can spin the server down right away if it’s not working out how you’d hoped.
Imagine trying to accomplish that same scenario on-premise. You’d have to create a project plan and budgeting proposal. You’d have to get buy-in and approval from the top. Then, you’d have to order hardware, wait for it to be delivered, wait for the infrastructure team to rack it and stack it and get it tuned up.
If you didn’t plan your infrastructure needs perfectly you could end up needing more than you initially anticipated, causing the whole project to come to a screeching halt. Or, perhaps you ordered too much and the project never ended up taking off how you envisioned. The business takes a loss, and you’re the one at fault!
An incentive structure like that just doesn’t foster innovation. But using the cloud, experimentation is very low risk making it an ideal environment for companies aiming to be on the cutting edge with their tech to stay ahead of an innovative market.
The cloud is allowing companies to deliver 3x more features per year, or perhaps even more. While it’s hard to measure the ROI of that, we know anecdotally that it’s significant.
Adoption of new technologies
In an on-premises model, it can be prohibitively costly to keep up with technology advances. Organizations typically replace on-premises servers every three to five years, which is an eternity in the fast-paced world of technology.
Cloud Service Providers (CSPs) like Amazon Web Services, Microsoft Azure, and Google take the opposite approach. They adopt new technologies as they are introduced and quickly make them available to their customers as a competitive differentiator.
This means that companies using the public cloud can readily adopt the latest and greatest technologies as soon as they’re introduced, test them out and integrate them into their solutions without a large capital investment or even a commitment.
Let’s take a closer look at what this means for something like a machine learning (ML) instance.
Historically, artificial intelligence (AI) and ML frameworks were incredibly complex and expensive to implement and manage. Only well-funded organizations with a large amount of capital to throw around were able to invest in this technology. Today, cloud providers have made this technology available to nearly anyone with an internet connection.
In an industry like healthcare, the ability to run ML models on large sets of patient data is practically invaluable. By scanning terabytes, petabytes, or exabytes of historical data for trends and anomalies, healthcare organizations are able to identify more effective treatments, predict outcomes with incredible accuracy and even diagnose life-threatening problems earlier in order to increase the chances of survival.
When discussing the ROI of cloud in a space like healthcare, it’s necessary to flip the question around. What is the cost of not putting these new tools to work? How many people will die that could have been saved?
In other industries, like financial services, the answer will be less emotionally charged, but meaningful nonetheless.
Ability to scale
A telehealth provider client of ours experienced a 30-fold increase in demand for their application during March 2020. If this was an on-premise solution the company would have had to throw in the towel and accept the dreary fate of not being able to support all the potential business. They’d have missed out on customers while also failing to perform their business mission of providing critical healthcare.
Luckily, this was a cloud-native application. It required some re-architecture to account for the change, but within a matter of hours it was up and running in tip-top shape, reliable and performant and able to handle the influx of patients who needed care.
Being able to serve all potential customers without ever turning anyone away is a huge value that may be difficult for businesses to measure. But, again, it’s worth asking the question: what’s the cost of not having this capability?
Time spent on value-adding activities
Infrastructure management is an undifferentiated activity, meaning that it’s administrative and doesn’t increase your application’s competitive advantage in the eyes of customers in the way that a new feature or solution would. It’s more like a utility. You just need it to work!
Compare it to something like managing an electrical plant. Would you rather recruit and hire electrical experts, build out a power plant on your premises, and manage that going forward, or would you rather simply plug into the system and pay the provider for what you use?
The cloud allows companies the opportunity to allocate more internal resources toward differentiated activities that require creativity, innovation, and industry knowledge to do well. Things like developing applications, delivering healthcare or creating and executing strategic business plans can all receive greater focus when you retire your data center and start using the public cloud.
In a discussion around cloud ROI, take a look at what percentage of internal resources and individual employee time is dedicated to differentiated vs. undifferentiated activities, and compare that to pre-cloud transition.
Most people these days understand the shared responsibility model and are bought into the idea that the cloud has the potential to be more secure than traditional infrastructure. That’s because the big CSPs can hire the best cybersecurity talent in the world and invest in best-in-breed tools that allow them to secure their end of the cloud more effectively than most organizations could if they owned the infrastructure themselves.
Another benefit of the shared responsibility arrangement is that security certifications and compliance attestations become easier to achieve in the public cloud. CSPs like AWS, Microsoft and Google all offer services that are HITRUST, SOC 2 and FedRAMP compliant, to name just a few of the supported compliance frameworks. Just by using those services, you can inherit attestation to various controls (or policies) that your CSP has already met. You can shave dozens or hundreds of hours off your certification or audit timeline by inheriting from your CSP. In fact, companies that work with Cloudticity are reducing their HITRUST certification timeline by 40–60%.
Global cyber attacks increased 38% in 2022. It goes without saying the value of good security is high, and these certifications offer other benefits such as increased marketability in highly regulated markets, which can directly translate to financial ROI.
You wouldn’t measure the value of a car based on how much cheaper it is than a horse. Similarly, you can’t measure the overall value cloud delivers by the size of your bill.
There are cost-saving opportunities based on how you architect and manage your cloud. You should absolutely focus on cloud cost optimization, but cost savings shouldn’t be your number one goal.
Cloud is about enabling organizations to solve problems that previously could not be solved. It’s about freeing companies to get out of the data center business so they can be pioneers and focus on what makes them very, very special.
It’s gratifying to see the industry finally coming around to understand this. It would be a shame for the world to miss out on all the potential value cloud has to offer because of some uninformed headlines.