Economic Principles for Cloud Computing

Cloud Computing is not just a new hype but it also delivers some great benefits for Businesses. Cloud Computing is nothing ground-breaking new but rather a new name for already existing technologies. This also applies to Businesses since factors that apply to outsourcing, mostly apply to Cloud Computing also.

This Article is inspired by the Whitepaper “Wildemann, 1987” on outsourcing.

Wildemann describes 5 key factors for Outsouring: Strategy, Performance, Costs, Financials, Human Resources. Each key factor consists of factors that fall into a key factor.

Strategy as indicator for Cloud Computing
Strategy as indicator for Cloud Computing

Strategy describes opportunities for the Business using Outsouring or Cloud Computing. It doesn’t describe benefits for the Cloud Computing Provider. Imagine you are a company that manufactures supplies for cars. It is definitely important to have a performant IT up’n’running, but why would you built all the IT on your own? For a company, it is important to concentrate on the core business. IT should support the company, but it shouldn’t use too many ressources. If a company outsources it’s IT department, it also gets higher flexibility. Another factor comes with risk – why would you want to care about possible server outages? With Cloud Computing, you simply transfer this risk to your Cloud Computing Provider. Last but not least, outsourcing gives greater Standardisation possibilities. With Cloud Computing, Standards get more and more important.


Performance as indicator for Cloud Computing
Performance as indicator for Cloud Computing

Performance describes the Outsourcers point of view. This means the increased performance a Cloud Computing provider can deliver. If you do something very often, you might get really good in it after a while. Different companies focused on delivering their products and improving them, as they specialized on it. Specialisation leads to higher performance by the service provider. Between Cloud Computing providers and companies using their services, SLAs are often used to define the Services and Responsibilities between them. If the IT is not outsourced but within your company, you might have no defined services. What we can already see in the Cloud is the high level of Service Orientation. All Cloud Platforms contain “as a Service” in it and the services are built for service orientation. Companies that keep their IT on-premise often run into scaling issues, as  services are not available on-demand. Cloud Computing providers have an on-demand availability of services.

Financial effects of Cloud Computing
Financial effects of Cloud Computing

Costs are often mentioned and discussed when we talk about Cloud Computing. Unfortunately, it is often referred to as the “main” factor to move to the Cloud. The other 4 factors are not even mentioned in many cases. However, a good thing about Cloud Computing is definitely the fact that costs can be planned easy. If you need another Instance, you know exactly what the rate per hour will be. On the other hand, your Chief Financial Officer will love your IT department for transferring Capex  into Opex. Controlling and Accounting departments often prefer operational expenses (Opex) over capital expenses (Capex). If you buy a new car, would you rather pay the full sum at once or would you rather lease it? Often leasing is preferred as it doesn’t require you to have all the money in cash.

Human Resources is always a difficult thing in IT companies. To find high qualified staff, expensive recruiting is often necessary. It is no secret that there is a lack of IT staff. If you outsource your IT department, this problem is also “outsourced”, since it is not necessary for you to find qualified IT staff. And we can focus on the topic mentioned in “Strategy”: focus on your core competency and find staff for what you need in your company.

Financials is the last, but not least topic we discuss when it comes to Cloud Computing. As discussed in “Costs” Capex are transformed into Opex. This has positive effects on the bilance at the end of the year. Costs are split over more years and not in a single year.

So, there are several positive effects for Cloud Computing, not just money. Unfortunately, money is the one that is referred to in most cases. If you talk about the Cloud again, try to adress the other topics as well.

Published by

Mario Meir-Huber

I work as Big Data Architect for Microsoft. With this role, I support my customers in applying Big Data technologies - mainly Hadoop/Spark - for their use-cases. I also teach this topic at various universities and frequently speak at various Conferences. In 2010 I wrote a book about Cloud Computing, which is often used at German & Austrian Universities. In my home country (Austria) I am part of several organisations on Big Data.

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