Have you evaluated the risk?
Investors, shareholders and creditors are all familiar with financial risk — the potential for uncontrolled financial loss and the uncertainty it brings. When it comes to public cloud computing, financial risk also needs to be considered. Because cloud computing shifts IT spending to a pay-as-you-go model (OpEx) instead of paying up front (CapEx), the OpEx model sounds perfect. You get to use what you need when you need it. What could possibly go wrong?
When does it make sense to spend OpEx versus CapEx?
Below I’ve described four business models for deploying different workloads and analyzed the financial risk of each. This information can help you decide which workloads to deploy with a pay-per-use, OpEx model (used in the public cloud) and which workloads work best with a CapEx model (commonly used in traditional on-premises or private cloud).
Workload 1: Revenue generating app in the public cloud
Your developers have written a new app for your customers — one that generates revenue from everyone who uses it. This app is based on a pay-per-use model. As long as the revenue you receive from the app is greater than the cost for putting it in the public cloud (and you receive payment prior to your cloud bill), all is well.
Financial risk = NONE. Congratulations, you have selected wisely! Your revenue-generating app is a winning business model in the public cloud.
Workload 2: Non-revenue generating app
Your developers have created a new app that is freely available for your customers to use. You’re not certain how many customers will take advantage of it, but you’ve made some initial calculations. If only a portion of your customers take advantage of it, you can afford to pay the added costs incurred in the public cloud. But what if your app becomes wildly popular? Since you don’t have any revenue associated with it, you must pay for the added costs from your bottom line. The good news is … your app is very popular. The bad news is … your app is very popular AND costly!
Financial risk = HIGH. Tread carefully. Your non-revenue generating app running in the public cloud may just put you out of business!
Workload 3: Customer support app in the cloud
Because you know how many customers you have, a customer support app in the public cloud seems like a predictable expense — therefore, the financial risk should be small. You’ve run the numbers and the cost for implementing this workload in the cloud is known and stable. You’ve budgeted the expense.
Unfortunately, you just found out that sales missed expectations for the previous quarter and your CFO has determined each department must cut 20%. That leaves you in a bind, since you can’t cut 20% of your customers. If your workload was in a private cloud or on-premises, you could easily save 20% by putting off a budgeted tech refresh. Not so in the public cloud, since this cost is fixed.
Financial risk = MEDIUM to HIGH. You should probably start looking around for other ways to cut costs.
Workload 4: Workload with known demand
Spending CapEx dollars for IT when you are unsure of what you need isn’t smart business. Yet, the opposite is also true. When you have a workload with known demand, why would you overpay to put it in the public cloud?
As I mentioned in a previous article, it’s likely cheaper and faster to rent capacity in a cloud than to build and own it yourself. But just like renting a house, it becomes more expensive over time and you never own anything. If your workload is committed to run at a certain level over a long period, you may actually be wasting money in the public cloud — money that could be used to implement a better solution for your enterprise.
Since you already know how much you will need to spend to run the workload, why not invest that money in your own infrastructure instead of paying a premium to someone else? At the end of the app’s lifecycle, you actually may have paid two to five times as much in OpEx compared to if you had bought the equipment upfront with CapEx costs.
Financial risk = MEDIUM to HIGH. Although this decision isn’t a devastating financial risk for your business, consider looking to private cloud for a smarter long-term strategy.
Less financial risk combined with cloud-like benefits — all in-house
In three out of the four scenarios I’ve discussed, application or workload deployment on-premises or in a private cloud involved lower levels of financial risk. In the past, building a private cloud may have been difficult, but with today’s new composable and hyperconverged infrastructures, it has never been easier. You can have all of the benefits of public cloud in your own datacenter — benefits such as simple integrations, subscription payment models and elastic capacity. And for those who want an OpEx model without the financial risk, that flexibility is available on premises. Lastly, as outlined in a 451 Research 2016 report, the private cloud model often comes with a lower total cost of ownership.
Every business needs to take stock of their applications and determine the financial risk of deploying in the public cloud versus deploying on traditional IT or in a private cloud. It’s time to mitigate your financial risk by exploring which of your key workloads and apps should be moved out of the public cloud.
About Gary Thome
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