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Friday, May 21, 2010

Cloud: Does ROI Matter?

Nobody asked about return on investment during the American Revolution.  Specific cloud implementations may fail or succeed.  In my research on cloud ROI for our upcoming InformationWeek Analytics report, I haven’t yet found an end user that has put together a stringent return-on-investment analysis using discounted cash flow techniques.  I also spoke to a bunch of cloud providers during my research.  Moorman said that the enterprise users that he speaks to are chiefly focused on how organizations look at adding cloud computing to the mix of what they’re doing today in a safe way, rather than “having a big TCO debate.”  He rightly points out that IT budgets and ROI studies can be maneuvered in much the same way that statistics can be—you can tell just about any story you want to if you frame it right.  Crenshaw told me, “We don’t really recommend that customers do a pie-in-the-sky model that shows that IT costs are going to drop 50-60%” because, he says, “maybe it’s credible, maybe it’s not.”

Mickos makes a great point that cloud is very similar to something that IT shops are currently doing and proving the return on investment of.  “There’s a very strong ROI story inherently inside cloud which mimics the one of virtualization.”

He’s of course talking about the notion of taking physical machines that are mostly idle and consolidating them into virtual machines that share the same resources, which always leads to lesser investment of physical resources.  He’s also seeing that current cloud customers are mostly in test and piloting mode.

Even if the reality of a specific implementation fails, the model itself—that of elasticity, commodity hardware stitched together by clustering software, economies of scale, shared resources—is compelling enough that it will be successful despite individual implementation failures or successes.

Posted on 05/21