Comments on: Cloud as variable cost? http://blogs.gartner.com/dan_sholler/2009/05/26/cloud-as-variable-cost/ A member of the Gartner Blog Network Fri, 16 Oct 2009 17:05:56 -0400 http://wordpress.org/?v=2.8.4 hourly 1 By: Twitted by erniehuber http://blogs.gartner.com/dan_sholler/2009/05/26/cloud-as-variable-cost/comment-page-1/#comment-395 Twitted by erniehuber Wed, 27 May 2009 02:56:49 +0000 http://blogs.gartner.com/dan_sholler/2009/05/26/cloud-as-variable-cost/#comment-395 [...] This post was Twitted by erniehuber - Real-url.org [...] [...] This post was Twitted by erniehuber – Real-url.org [...]

]]> By: Dan Sholler http://blogs.gartner.com/dan_sholler/2009/05/26/cloud-as-variable-cost/comment-page-1/#comment-394 Dan Sholler Tue, 26 May 2009 21:17:49 +0000 http://blogs.gartner.com/dan_sholler/2009/05/26/cloud-as-variable-cost/#comment-394 I should be clear about what I am saying... There are a whole lot of very useful, interesting, and significant things that get lumped together under the heading of "cloud computing". All of these things will have an impact on what we do, and how we think about using information and technology. However, there are several items in that list that will have disproportionate impacts. The single item that I believe will have the greatest impact is the conversion of some portion of our IT spending from fixed cost to variable cost. This is the essence of what most of the customers I speak with are interested in the cloud. When I started in IT, the big buzzword was "Client/server". At the time, there were huge debates about the technical characteristics of client/server( can the client be a Mainframe? must the server run a relational database? ) that were very similar to the discussion we have today (can a "private cloud" really be a cloud? Is virtualization all I need to be a cloud, ) etc. These debates were important, but when you spoke to an IT professional and they asked you for a "client/server solution", the meaning of that statement was crystal clear, and had nothing to do with the debates... they were asking for something that did not run on the mainframe. The same is true today with cloud.. .despite all the debate, what is being asked for when an IT professional seeks a "cloud-based solution" is one in which they do not have to take on ownership of the assets, and instead can pay for the thing as variable cost. The issue here is not so much about cost savings, as it is about changing the thinking. First off, when I do not own the asset base, I do not have to worry about the utilization of those assets. This changes my entire approach to managing IT resources (which historically has been about maximizing asset utilization). Second is that if I know that my cost basis can scale down as well as up, then I have a different set of risk components, and I may be willing to try different things with a much lower threshold. We see this happen with SaaS solutions like Salesforce.com today. Finally, this notion of variable cost transforms the delivered item from the asset (a computer, a piece of software) to a service (bookeeping, data availability). This in turn will have a profound effect on the commercial relationships involved, as people pay for the thing that they are buying (purchasing bookeeping services is likely to be paid for rather differently than purchasing accounting software). For these reasons, I believe that the most significant impact of cloud computing will be this transition to variable cost structures. I am not saying all computing will go this way, nor am I predicting that this will all happen in the next year or two, but I suspect if we look back 10 years from now, this will be the time when the old business model for IT started to shift. I should be clear about what I am saying…
There are a whole lot of very useful, interesting, and significant things that get lumped together under the heading of “cloud computing”. All of these things will have an impact on what we do, and how we think about using information and technology. However, there are several items in that list that will have disproportionate impacts. The single item that I believe will have the greatest impact is the conversion of some portion of our IT spending from fixed cost to variable cost.

This is the essence of what most of the customers I speak with are interested in the cloud. When I started in IT, the big buzzword was “Client/server”. At the time, there were huge debates about the technical characteristics of client/server( can the client be a Mainframe? must the server run a relational database? ) that were very similar to the discussion we have today (can a “private cloud” really be a cloud? Is virtualization all I need to be a cloud, ) etc.

These debates were important, but when you spoke to an IT professional and they asked you for a “client/server solution”, the meaning of that statement was crystal clear, and had nothing to do with the debates… they were asking for something that did not run on the mainframe. The same is true today with cloud.. .despite all the debate, what is being asked for when an IT professional seeks a “cloud-based solution” is one in which they do not have to take on ownership of the assets, and instead can pay for the thing as variable cost.

The issue here is not so much about cost savings, as it is about changing the thinking. First off, when I do not own the asset base, I do not have to worry about the utilization of those assets. This changes my entire approach to managing IT resources (which historically has been about maximizing asset utilization). Second is that if I know that my cost basis can scale down as well as up, then I have a different set of risk components, and I may be willing to try different things with a much lower threshold. We see this happen with SaaS solutions like Salesforce.com today. Finally, this notion of variable cost transforms the delivered item from the asset (a computer, a piece of software) to a service (bookeeping, data availability). This in turn will have a profound effect on the commercial relationships involved, as people pay for the thing that they are buying (purchasing bookeeping services is likely to be paid for rather differently than purchasing accounting software).

For these reasons, I believe that the most significant impact of cloud computing will be this transition to variable cost structures. I am not saying all computing will go this way, nor am I predicting that this will all happen in the next year or two, but I suspect if we look back 10 years from now, this will be the time when the old business model for IT started to shift.

]]> By: nico http://blogs.gartner.com/dan_sholler/2009/05/26/cloud-as-variable-cost/comment-page-1/#comment-393 nico Tue, 26 May 2009 20:20:02 +0000 http://blogs.gartner.com/dan_sholler/2009/05/26/cloud-as-variable-cost/#comment-393 but is it really variable? can I always control, how much I make use of the infrastructure? isn't it even dangerous to allow cost cutting at such a crucial point? it might lead to wrong decisions in times of tight budgets. but maybe I'm having in mind the wrong scenario of application right now... the "cloud" can have many advantages for different kind of businesses, but variable costs I don't see yet. flexibility in the cloud is driven by demand, but not by costs. but is it really variable? can I always control, how much I make use of the infrastructure? isn’t it even dangerous to allow cost cutting at such a crucial point? it might lead to wrong decisions in times of tight budgets. but maybe I’m having in mind the wrong scenario of application right now… the “cloud” can have many advantages for different kind of businesses, but variable costs I don’t see yet. flexibility in the cloud is driven by demand, but not by costs.

]]>