Salesforce’s recently announced the availability of its Internet of Things (IoT) cloud, which will be hosted on Amazon Web Services (AWS), and represents a step change in the way the company integrates third-party infrastructure. Salesforce says the move was brought about by the need for flexibility to handle “uncontrolled exponential growth” of the IoT service, but it also demonstrates the need for the company to keep a close eye on costs.
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The cloud’s the limit?
Salesforce’s decision to move to AWS highlights the fact that operating your own data centre is increasingly expensive and time intensive. Pushing services to the cloud removes the need for upfront investment in data centres that won’t reach capacity for some time. Moreover, it gives organisations the ability to rapidly configure and scale infrastructure resources according to demand almost instantaneously.
Other key benefits of moving applications to the cloud include:
- Significant cost savings achieved from reduction in capital expenditure and potentially lower operational expenses;
- Simplified processes for businesses to implement disaster recovery solutions and backup systems while avoiding large-scale capital investment; and
- A more transparent costing structure for business partners.
Given the opportunity for cost savings, it won’t be long before CFOs start asking their colleagues in IT whether more of the company’s applications could be hosted in the cloud, rather than on more expensive in-house servers. But to give the best guidance to the business when answering these questions, IT leaders have to go beyond conversations of run costs for on-site versus public clouds. They have to also identify and explain the hidden costs of cloud migration that CFOs typically don’t see.
Exploring the hidden costs
If only the cloud were as simple as its marketing. While there can be financial benefits with a shift to the cloud, the financial impact of migrating assets to the cloud can be substantial. In the absence of efficiencies created elsewhere, our analysis shows that a company migrating a significant chunk of capacity to the cloud would not be able to offset migration costs for two-to-four years. It’s akin to moving from a high-cost city to a lower-cost city; even if it’s the right moreover time, you still have to face moving costs.
Telling the cloud cost story
In the long term, as risk-adjusted pricing continues to drop, economies of scale will lead more companies to migrate applications and data over to the cloud. In the short term, the most important thing that IT leaders can do is demonstrate the complete story of cloud costs, in terms of migration and projected future costs.
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Equally important, IT leaders need to figure out how their cloud story fits in with the story that the CFO is trying to tell investors. Where will IT’s cloud strategy contribute to scalable cost savings? Will it instead deliver speed, to fuel enterprise growth initiatives? IT leaders need to understand this context, and demonstrate the fit between cloud economics and enterprise economics.
Mark Tonsetic, Practice Leader (Information Technology Practice) at CEB
Mark is the Managing Director for CEB’s Infrastructure Leadership Council and Applications Leadership Council. Prior to his current role, Mark led the development of products and services for CEB’s Data Center Operations Council, as well as key research initiatives for infrastructure executives around the issues of e-discovery and multi-sourcing.
Mark also led the development of CEB’s first “IT Summit” event, Collaboration and Social Media @ Work, as well as the launch of a new experiential learning service for IT managers, CEB Service Management Bootcamp.
Prior to CEB, Mark worked in consulting roles at Booz Allen Hamilton and The MITRE Corporation, and served over eight years as an active-duty officer in the U.S. Navy.
He holds a Master’s in International Policy and Practice from The George Washington University, and a B.A. in International Relations and Economics from the University of Pennsylvania.