Does the Cloud ROI Stack up- or does it fall?
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This document summarizes a presentation on evaluating the return on investment (ROI) of cloud computing compared to on-premise solutions. It discusses evaluating ROI using a methodology that accounts for costs, cost avoidance, productivity gains, flexibility, and risk adjustments. It then provides an example ROI analysis for an email solution, finding cloud delivers positive ROI within the first year when accounting for costs, cost avoidance, productivity gains, and business continuity benefits over an on-premise alternative. It emphasizes ROI calculations for cloud are complex and require considering various tangible and intangible factors.
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Does the Cloud ROI Stack up- or does it fall?
- 1. Jonathan_W Does the Cloud ROI Stack up? Justin Pirie @justinpirie http://justinpirie.com jp@justinpirie.com Cloud Circle- London April 20th 2010
- 5. Where I work
- 10. Benefits of Google Apps
- 12. Over 500,000 users can’t be wrong!
- 13. Jonathan_W Does the Cloud ROI Stack up?
- 14. Robert S. Donovan Or does it fall?
- 15. Why we’re really here...
- 18. IaaS ROI is about Utility Premium
- 19. ASlightAdjustment http://www.flickr.com/photos/rustyboxcars/ CC BY-SA 2.0 William Vambenepe
- 21. Look back
- 23. Mess of Pottage PC Era
- 24. Store and search text! ThisIsIt2
- 25. Guess who?
- 26. Yes, them
- 29. IXQUICK To judge the cloud
- 30. JanneM New Tools
- 36. Idea = Agile Picture Taker 2
- 37. Reality for IT = Quicksand sasamaster
- 39. Business feeling about IT
- 43. Business feeling about IT
- 44. IT using Managed services @appirio
- 46. Getting on better... Arno & Louise
- 49. Align IT and business technicallyCreative
- 50. Fall in love again
- 52. @lmacvittie What next... Growing pains
- 53. Cloud ROI is Complex- FACETS Swamibu
- 56. Cost shareski
- 59. Security
- 60. And now the science bit...
- 61. Simplistic
- 63. Simple ROI models are broken ° ρЯίтΛм ° [away]
- 64. Compare Apples to Oranges helgasms!
- 65. JanneM New Tools
- 67. ms4jah Benefits
- 68. Cost shareski
- 69. Risk Adjust
- 72. Apply it to email
- 73. 5 Customers, focused on a 5000 seat site
- 74. Cost shareski
- 78. Costs (non risk- adjusted, US$) Initial Year 1 Year 2 Year 3 Year 4 Year 5 Total PV Mimecast setup costs $3,000 $3,000 $3,000 Costs of internal labor (20 person days) $7,680 $7,680 $7,680 Costs for ingestion of existing email archives (2 TB) $42,060 $42,060 $42,060 Total SaaS fees per year ($60 per user per year) $300,000 $300,000 $300,000 $300,000 $300,000 $1,500,000 $1,137,236 Mimecast support charges $12,000 $12,000 $12,000 $12,000 $12,000 $60,000 $45,489 TOTAL costs $52,740 $312,000 $312,000 $312,000 $312,000 $312,000 $1,612,740 $1,235,465 Work out Cloud costs
- 79. ms4jah Benefits
- 80. Benefits (non risk- adjusted, US$) Year 1 Year 2 Year 3 Year 4 Year 5 Total PV Email filtering cost savings $90,000 $90,000 $90,000 $90,000 $90,000 $450,000 $341,171 Legacy systems cost savings $9,121 $5,787 $5,787 $5,787 $5,787 $32,270 $24,969 Total Cost Savings $99,121 $95,787 $95,787 $95,787 $95,787 $482,270 $366,140 Benefits (non risk- adjusted, US$) Year 1 Year 2 Year 3 Year 4 Year 5 Total PV Replication cost avoidance $129,636 $65,996 $65,996 $65,996 $131,236 $458,860 $348,540 Archiving infrastructure cost avoidance $367,160 $95,591 $95,591 $95,591 $398,631 $1,052,565 $797,411 Total Cost Avoidance $496,796 $161,587 $161,587 $161,587 $529,867 $1,511,425 $1,145,951 Cloud Benefits- Savings and Avoidance
- 81. Benefits (non risk- adjusted, US$) Year 1 Year 2 Year 3 Year 4 Year 5 Total PV IT help desk productivity gains $7,744 $7,744 $7,744 $7,744 $7,744 $38,720 $29,356 eDiscovery productivity gains $30,528 $30,528 $30,528 $30,528 $30,528 $152,640 $115,725 End user productivity gains $138,233 $138,233 $138,233 $138,233 $138,233 $691,167 $524,013 Total productivity gains $176 505 $176 505 $176 505 $176 505 $176 505 $882 527 $669 094 Benefits (non risk- adjusted, US$) Year 1 Year 2 Year 3 Year 4 Year 5 Total PV Business continuity — move of a branch office $472,727 $472,727 $429,752 Business continuity — email availability during unplanned downtime $105,456 $105,456 $105,456 $105,456 $105,456 $527,280 $399,761 Total Business Continuity $578,183 $105,456 $105,456 $105,456 $105,456 $1,000,007 $829,513 Cloud Benefits- Productivity + Specific
- 82. Benefits (non risk adjusted, US$) Year 1 Year 2 Year 3 Year 4 Year 5 Total PV Cost avoidance $496,796 $161,587 $161,587 $161,587 $529,867 $1,511,425 $1,145,951 Business continuity $578,183 $105,456 $105,456 $105,456 $105,456 $1,000,007 $829,513 Cost savings $99,121 $95,787 $95,787 $95,787 $95,787 $482,270 $366,140 Productivity gains $176,505 $176,505 $176,505 $176,505 $176,505 $882,527 $669,094 TOTAL benefits $1,350,605 $539,336 $539,336 $539,336 $907,616 $3,876,229 $3,010,698 Cloud Costs + Benefits
- 84. Benefits (non risk adjusted, US$) Year 1 Number of users 100 SaaS Costs ($60 x 5 years) $30,000 Cost of On-premise $76,640 Flexibility Benefit $56,649 Flexibility scenarios e.g. New Office
- 85. Ash Cloud Narisa
- 86. Risk Adjust
- 87. Totals- Non- risk adjusted
- 88. Some complicated excel calculations... Ivan Walsh
- 90. 0 200 400 600 800 1000 1200 1400 Year 1 Year 2 Year 3 Year 4 Year 5 $'000 Mimecast On-Premise Cloud Annual Investment
- 91. 0 500 1000 1500 2000 2500 3000 3500 Year 1 Year 2 Year 3 Year 4 Year 5 $'000 Mimecast On-Premise Cloud Cumulative Investment
- 92. “100% ROI in less than 100 days.” Chris Petrie, IT Director
- 93. “A "SaaS first" policy is being enacted in the majority of small and midsize businesses” Feb 2010
- 94. Trust but verify
- 95. “You have to dive in to learn the lessons” Mark Brewer, CIO
- 96. Elephant in the room.... David Blackwell (Dilettante)
- 97. Network Effects and Ecosystems
- 98. redteam Cloud Transforms IT guy
- 99. Into a business enabler shindohd
Editor's Notes
- Security
- Continutity
- Archive
- Bringing all the benefits of Google apps- horizontal scalability, reliability, etc
- To Microsoft Exchange
- IaaS and PaaS are different to SaaS In other words, for uniformly distributed demand, the percentage of resources that should be on-demand is the inverse of the utility premium. If there is no premium, all resources should be on-demand, if the utility premium is 2, half the resources should be on-demand, if the utility premium is 4, a quarter of the resources should be on-demand, and so forth.
- saying that the guillotine was our preferred way of solving any problem and also the last reliable piece of technology invented in France (no customer has ever come back to complain). Plus, enough people in the audience seemed to share my lassitude with the 3-layer Cloud stack to find its beheading cathartic. Come to think about it, there are more similarities. The guillotine is to the axe what Cloud Computing is to traditional IT. So I may use it again in Cloud presentations. Of course this beheading is a bit excessive. There are some aspects for which the IaaS/PaaS/SaaS continuum makes sense, e.g. around security and compliance. In areas related to multi-tenancy and the delegation of control to a third party, etc. To the extent that these concerns can be addressed consistently across the Cloud stack they should be. But focusing on these “Cloud” aspects of SaaS is missing the forest for the tree. A large part of the Cloud value proposition is increased flexibility. At the infrastructure level, being able to provision a server in minutes rather than days or weeks, being able to turn one off and instantly stop paying for it, are huge gains in flexibility. It doesn’t work quite that way at the application level. You rarely have 500 new employees joining overnight who need to have their email and CRM accounts provisioned. This is not to minimize the difficulties of deploying and scaling individual applications (any improvement is welcome on this). But those difficulties are not what is crippling the ability of IT to respond to business needs. Rather, at the application level, the true measure of flexibility is the control you maintain on your business processes and their orchestration across applications. How empowered (or scared) you are to change them (either because you want to, e.g. entering a new business, or because you have to, e.g. a new law). How well your enterprise architecture has been defined and implemented. How much visibility you have into the transactions going through your business applications. It’s about dealing with composite applications, whether or not its components are on-premise or “in the Cloud”. Even applications like Salesforce.com see a large number of invocations from their APIs rather than their HTML front-end. Which means that there are some business applications calling them (either other SaaS, custom applications or packaged applications with an integration to Salesforce). Which means that the actual business transactions go across a composite system and have to be managed as such, independently of the deployment model of each participating application.
- We’re going to look at SaaS ROI
- Look back to see how we viewed previous paradigm shifts
- Mainframe – pc – ultimate benefits not forseen
- http://www.ecommercetimes.com/story/69737.html?wlc=1271077512&wlc=1271086353 The fact of the matter is that, if you're looking for cheap IT, we can give you cheap IT. However, you're not going to be able to keep up with the competitive value that IT needs to bring to your enterprise. To get that competitive value, you're going to have to spend additional money. The ability to align your IT resources to the needs of the business quickly, get into markets fast, delight customers, sell more, and create supply chain integration systems that provide with frictionless commerce is really where the value is in this. The myth is that cloud computing is always going to be less expensive. I think cloud computing typically is going to be a better, more strategic, more agile architecture, but it's also typically going to be more expensive, at least on the outcome. We're probably going to have to spend more money initially. That's really what the takeaway is from the initial cloud-computing projects that I am involved in. At the end of the day, it's about strategic use of technology. Ultimately, cost reduction should be part of the result, but in getting there, we're going to have to spend additional dollars.
- Traditional IT department In the past, the only way for a company to maintain control of their business process was to completely own the technology supporting the process. The rationale was that a company's most strategic, differentiating processes are unique and therefore have to built by the company either from scratch or by heavily customizing packaged applications. This also meant owning the entire technology stack supporting the process and the application. So, while the intent was to create differentiated processes that were agile and differentiating, the reality has become that the technology stack is an albatross around the IT team's neck that prevents them from moving as quickly and as efficiently as they would like to. The result is that while IT organizations are keen to support the business, they are unable to go much beyond providing basic services. The solution to the problem of managing the entire stack was traditionally either hosted/managed server services or outsourcing, but each introduces its own problems. http://blog.appirio.com/2009/05/do-your-most-strategic-apps-belong-in.html
- Outsourcing In the case of outsourcing, the enterprise gains cost savings but relinquishes control of their business process and has to adhere to the provider's "best-practice" process. This clearly means that outsourcing can only be applied to commodity processes rather than any differentiating processes or processes where innovation is needed. The IT team's role shifts to primarily vendor management with little ability to innovate or drive the business.
- Hosted/Managed Servers Hosting gets a bit closer to solving the problem because it reduces some of the IT team's pain in terms of managing infrastructure. However, the IT team still needs to spend a lot of their time maintaining the application and the middleware stack, i.e., applying patches and bug fixes, implementing upgrades, maintaining integrations, etc. In addition, the team also needs to manage their relationship with the hosting vendor. So, again, the main impact is some cost savings but no real gains in terms of agility or ability to innovate or support the business.
- IT department in the cloud Cloud computing changes the decision process completely. No longer do companies face a choice between relinquishing all control of their business process for cost savings or dealing with the high costs and complexity of supporting an entire software stack. Platforms like Force.com and Google App Engine give companies a way to control the parts of the stack that matter most, the application and business process layer and abstract away the management of the infrastructure. This means that the IT team can focus their energies on driving innovation and supporting the business.
- http://devcentral.f5.com/weblogs/macvittie/archive/2010/04/14/at-interop-you-can-find-out-how-five-ldquoatesrdquo-can.aspx The biggest disadvantage organizations have when embarking on a “we’re going cloud” initiative is that they’re already saddled with an existing infrastructure and legacy applications. That’s no surprise as it’s almost always true that longer-lived enterprises are bound to have some “legacy” applications and infrastructure sitting around that’s still running just fine (and is a source of pride for many administrators – it’s no small feat to still have a Novell file server running, after all). Applications themselves are almost certainly bound to rely on some of that “legacy” infrastructure and integration and let’s not even discuss the complex web of integration that binds applications together across time and servers. So it is highly unlikely that an organization is going to go from its existing morass of infrastructure that comprises the data center to an elegant, efficient “cloud-based” architecture overnight. Like raising children, it takes an investment of time, effort, and yes, money. But for that investment the organization will eventually get from point A (legacy architecture) to point Z (cloud computing) and realize the benefits associated with an on-demand, automated data center. There are some milestones that are easily recognizable as enterprise data centers as you traverse the path between here and there; steps, if you will, on the journey to free the data center from its previously static and brittle infrastructure and processes on its way to a truly dynamic infrastructure. There are, you guessed it, five steps and they all end with (how’d you ever guess?) “ate”. 1. SEPARATE test and development 2. CONSOLIDATE servers 3. AGGREGATE capacity on demand 4. AUTOMATE operational processes 5. LIBERATE the data center with a cloud computing model And for your efforts of raising up this data center you’ll achieve a dynamic infrastructure that is scalable, reliable, and enables available applications. Yes, the three “ables”. Modern “math” says five “ates” = three “ables”, at least in the realm of the data center. To get there a new paradigm in data center and networking design is required; one that allows the customer, on their terms, to add, remove, grow, and shrink application and data/storage services on-demand. It’s the type of network that can understand the context of the user, location, situation, device, and application and dynamically adjust to those conditions. It’s the type of network which can be provisioned in hours not weeks or months to support new business applications. It’s an Infrastructure 2.0 enabled data center: integrated, collaborative, and services-based. What’s necessary is a new architecture and new way of looking at infrastructure. But to build that architecture you first need a blueprint, a map, that helps you get there – building codes that help navigate the construction of a dynamic infrastructure that’s capable of responding to demand based on the operational and business processes that have always been the real competitive advantage IT brings to the business table. That blueprint, the architecture, is infinitely more important than its individual components. It’s not just the components, it’s the way in which the components are networked together that brings to life the dynamic data center. And it’s those architectural blueprints, the building codes, that we’re bringing to Interop.
- http://gigaom.com/2009/06/17/how-clouds-can-complement-consolidation/ As businesses struggle to remain viable, much less grow, cost management is an imperative. Massive data center consolidation, automation and virtualization can drastically reduce costs — reportedly up to a billion dollars annually, in at least one case. However, money isn’t everything: CIOs need to balance what I’ll call the six FACETS of IT: Flexibility, Availability, Cost, Experience, Timeliness and Security. However, money isn’t everything: CIOs need to balance what I’ll call the six FACETS of IT: Flexibility, Availability, Cost, Experience, Timeliness and Security. These goals are often in conflict with each other. For example, consolidation alone can negatively impact availability — by putting all your server and storage eggs into one data center basket. And creating engaging user experiences for interactive applications demands geographic dispersion, the antithesis of consolidation. A hybrid approach that uses cloud services to complement consolidated enterprise data centers can holistically address these six FACETS:
- Flexibility — CIOs constantly face the challenges of new technologies, shifting application mixes, and changing market conditions. Unlike fixed-capacity enterprise data centers, cloud services promise “near-infinite” scalability to meet variable or unpredictable demand. But flexibility is more than scalability, e.g., it might entail the ability to shift resources from voice to video, or change data retention policies. This is where virtualization, converged multiprotocol networks, and cloud platforms can help.
- Availability -– Today’s global IT users — customers, employees and partners — demand instant gratification 24/7. High availability of applications and infrastructure benefits from reliable components and from rapid detection, diagnosis and repair processes, but fundamentally is enabled via increased redundancy, which drives up cost. However, the cost of outages usually substantially outweighs the cost of mitigation. Unfortunately, since availability can never exceed 100 percent, there are exponentially diminishing returns on redundancy investments. The good news: Flexible, on-demand cloud resources can be provisioned only in the event of a disaster, reducing the cost of enhanced availability.
- Cost — Nick Carr has argued that there will be a “big switch” to pure reliance on pervasive clouds to service enterprise IT needs, in the same way that electric utilities — which are also clouds — meet enterprise power needs. McKinsey & Co. has argued the opposite, complaining that cloud services are too expensive. However, for most businesses, the truth is somewhere in between; whenever demand is variable or unpredictable, total cost can be minimized through a combination of enterprise data centers and cloud resources.
- Experience — The user experience has become a key competitive battleground; think how much the success of Google search or Apple’s iPhone owe to usability and responsiveness. Unfortunately, global network latencies are greater than the threshold of human delay perception and reaction times (about 150 ms), so data center consolidation can aggravate response time issues as sites close to end-users are shuttered and interactive applications and functions — SaaS, AJAX, keystroke and mouse move processing via remote virtual desktops, interactive gaming — are moved to more remote sites. Therefore, consolidation of enterprise data centers must be complemented by dispersed cloud-based services such as content and application delivery if the user experience is to be positive.
- Timeliness — Accelerating time-to-value to meet ever-shorter product lifecycle windows is more important than ever. Cloud-based applications, infrastructure and platforms-as-services can compress time by replacing ponderous requirements, development, testing and/or provisioning processes with template configuration and agile assembly of component services.
- Security — Security, in all its dimensions — authorization, authentication, protection, privacy, compliance, etc. — is as critical, if not more so, than the other FACETS. Cloud services have had occasional issues, but the real question is not whether cloud services are perfectly secure, but whether they are more secure than their enterprise counterparts. Just like banks are more secure than homes — because they must be to remain in business — cloud services either are or will be more secure than enterprise data centers. Security can often be maximized either by leveraging pure cloud services, or by complementing enterprise IT with cloud-based security services such as network-based firewalls, anti-DDoS, cloud-based anti-spam and anti-virus, and web filtering.
- http://www.saasroi.co.uk/static/saasroi/
- broken
- Flexibility — CIOs constantly face the challenges of new technologies, shifting application mixes, and changing market conditions. Unlike fixed-capacity enterprise data centers, cloud services promise “near-infinite” scalability to meet variable or unpredictable demand. But flexibility is more than scalability, e.g., it might entail the ability to shift resources from voice to video, or change data retention policies. This is where virtualization, converged multiprotocol networks, and cloud platforms can help.
- Cost — Nick Carr has argued that there will be a “big switch” to pure reliance on pervasive clouds to service enterprise IT needs, in the same way that electric utilities — which are also clouds — meet enterprise power needs. McKinsey & Co. has argued the opposite, complaining that cloud services are too expensive. However, for most businesses, the truth is somewhere in between; whenever demand is variable or unpredictable, total cost can be minimized through a combination of enterprise data centers and cloud resources.
- Cliff- risk
- Cost — Nick Carr has argued that there will be a “big switch” to pure reliance on pervasive clouds to service enterprise IT needs, in the same way that electric utilities — which are also clouds — meet enterprise power needs. McKinsey & Co. has argued the opposite, complaining that cloud services are too expensive. However, for most businesses, the truth is somewhere in between; whenever demand is variable or unpredictable, total cost can be minimized through a combination of enterprise data centers and cloud resources.
- Security
- Continutity
- Archive
- Flexibility — CIOs constantly face the challenges of new technologies, shifting application mixes, and changing market conditions. Unlike fixed-capacity enterprise data centers, cloud services promise “near-infinite” scalability to meet variable or unpredictable demand. But flexibility is more than scalability, e.g., it might entail the ability to shift resources from voice to video, or change data retention policies. This is where virtualization, converged multiprotocol networks, and cloud platforms can help.
- Cliff- risk
- Green?
- Green?