March 6, 2014

The not so disruptive nature of the Cloud - CAPEX vs. OPEX

So, as the title of this post suggests, I want to discuss the disruptive nature of the Cloud, or rather the cloud not being so disruptive at all. This will be a series of 5 posts in total, you're reading the second post.

Read about the cloud and what it means and you're bound to read that the introduction of the Cloud, the real Cloud, the one that meets all criteria for being a Cloud, has been disruptive.

I like the NIST definition of Cloud, it is quite comprehensive and less vendor-biased than Gartner's defintion.

The Cloud has been disruptive when it comes to the IT industry, especially the hosting market. But it has also been a force in how we handle IT within the enterprise. There are a few important aspects of IT in the enterprise that we consider to have changed due to the Cloud:

  • Moving from in-house IT management services to off-site IT management services. 
  • Moving from CAPEX (Capital Expenses) based IT investments to OPEX (Operating Expenses). 
  • Moving from on-premise (business) applications to off-premise (hosted) applications. 
  • Moving from a centralized IT to a democratized IT 

  • I'm sure you can think of other movements as well in your IT environment, but these are typically considered to be not only happening, but also to be disruptive within the enterprise.
    These are in fact not really changes happening due to the Cloud, the Cloud merely gave these movements a boost and fast-tracked the changes in IT.

    Last time I wrote about Cloudsourcing, this time the more financial part is the topic.

    Ask the various vendors as well as analysts about the consequences of moving from the traditional data center model to the Cloud and they're bound to mention the big change that will happen regarding to your costs, namely going from CAPEX to OPEX based expenditure. Something that is to many a huge step in corporate financing.
    My question here is: "Really?" In the 1990's there was already some form of Cloud, but at the time it was marketed as Utility Computing. The idea was that you would buy computing power just like you buy electricity, as a utility. Sun Microsystems was betting on this as were many other vendors.

    Basically, in its essence, this is what Cloud is to a large part about. But the monniker 'Utility Computing' was dropped and after some iterations and the fact that the Internet is always portrayed as a cloud in diagrams, the new name was born. Fact is that by coining 'Utility Computing' these vendors addressed the accountants in the enterprises they were talking to, explaining the cost model. Why? Because the model of basic utilities was very well known to the people from the more financially inclined departments. They were used to thinking in terms of closing a contract and than pay for whatever utility they were using as they went. Pay-per-use. This definitely was and is true for a lot of IT related costs especially in the data center like power consumption, cooling (Air Conditioning).

    So the disruptive nature of the Cloud on the financials of an enterprise are not that disruptive at all, in fact at the time of introduction of the Cloud in its very early stages the Cloud vendors tried not to be disruptive at all and instead conform to what those with the money already knew.