[In this final segment, Bob discusses the cost savings of cloud storage in detail and advises businesses what to consider when deciding which applications to move to the cloud.]
The Cost Analysis
In our discussions with CIOs, many from Fortune 500 companies (and most entrepreneurs are working to be on that list), we have developed our own variation of the Pareto rule – 80 percent of applications and data are non-differentiating and not related to your venture’s IP or value proposition, and so are good cloud candidates. These include e-mail, archive and backup, and data on shared drives (e.g., documents, spreadsheets, databases.) The other 20 percent of your data and applications are critical IP and differentiate your company or carry substantial regulatory or compliance requirements. These should not be put in the cloud.
Ways to calculate actual cloud costs are controversial, but we use Dr. Elihu Goldratt’s theory of constraints as a starting point. Goldratt’s management philosophy identifies four constraints in the IT world: HR, facilities, hardware and software licensing. Take a company with a $10 million budget to see how the approximate costs break down:
HR (staff): $3 million
Facilities: $2.5 million
Hardware: $2 million
Software licensing: $1.5 million
Other: $1 million
In this example, we believe the cloud – including cloud storage – can save up 50 to 80 percent in some cases, because 80 percent of your applications and data are not differentiating and thus are cloud candidates. The obvious cost avoidance here comes from staffing, hardware, facilities and software licenses. But be conservative and assume that only 50 percent of your applications are cloud candidates – your savings will still be about 25 percent.
So, say 50 percent of your applications (e-mail, documents, databases, and related storage and backed-up files) are in the cloud, and think about what that means to each ‘constrained’ budget. For staffing you won’t need as many database admins, storage management people or application developers; all the people you need to manage applications behind the firewall can be refocused in areas where they provide more value to your venture. If, on the other hand, you were to outsource their jobs, the company would retain the IT assets, you’d have to pay an outsourcer, and savings would end. If you go to the cloud, on the other hand, you would save proportionately on the other three ‘constrained’ areas in your IT budget. Thus if you took 50 percent of your applications (e-mail, CRM, sales administration, databases, desktop productivity applications and related data, storage and backup) and put them in the cloud, you’d need to buy fewer servers and less storage, and so on. The key: You could save four times as much by putting those applications and storage in the cloud as if you had outsourced.
Finally . . .
The cloud has the power for positive change. If companies save more money using the cloud to manage their IT and storage requirements, they will take better care of their employees, and more people will have jobs.
The cloud is not one size fits all. There’s tremendous opportunity for all constituents: cost and complexity reduction for business users; architecture, security and API challenges for developers; and ease-of-use and data availability for all, especially SMBs and entrepreneurs. Just don’t take a one-cloud-fits-all approach – assess your needs, and you’ll find the right cloud solution for your business.