“… Informational Technology expenses can be high, if consumed all at once ….”
The New Normal, The Arrington Group
IT expenses (servers, software licenses and skilled personnel) cost a LOT of money. Traditionally some of these items were seen as assets for a company. Assets can be justified as investments; that is to say that I can spend more money today because it will cost me less later on. It appears that this may be an outmoded view as business and consumer usage shifts to a more on-demand paradigm.
Consider your habits around companies like Office Depot, Staples, Best Buy or HH Gregg. Contrast that with how you use Amazon.com or some other online retailers (including the web presence of the brick-and-mortar stores previously listed).
Business is following consumers’ move to just-in-time which requires more elasticity in a business. If 10 people use the business’ website today but on Thanksgiving weekend 10,000 people use it there is a definite gap for the business to leverage. It doesn’t make sense to not support the heavier traffic and lose sales. It also doesn’t make sense to buy all the capacity to support the one week of extremely heavy use only to see all that computing power/personnel sit idle most of the year.
The Cloud offers a promise of elasticity to businesses. By hosting applications in the cloud businesses can use shared computing power to increase their ability to respond to customers during peak operation periods and not have to pay for that ability during times of more normal usage.
One way Cloud Service Providers (CSPs) have made this financially attractive is to take a lesson from credit card companies and other retailers who found that you could bill people smaller amounts over extended time periods and gain more money. This isn’t pejorative in nature, it’s a service and well-delivered services are worth premium dollars.
To get back to The Arrington Group article I reference earlier the older model for business to invest in IT hardware/services/personnel was called Capex (or Capital Expenditure). It was a long-term investment and it required you to have all the money up front or else work out a deal where you committed to the total amount at the start of ownership cycle.
The Cloud lets businesses invest in some pieces of technology each month or quarter like an individual’s creditors do. In this manner companies can pay out of their Opex (or Operating Expense) budget.
The difference may seem semantic and pointless but consider how you buy a house or a car. Those are investments that most adults have to make to support a family or keep a job (in some settings it might be apartments and public transportation). In either of those cases most Americans don’t whip out $250,000 cash for a house or $35,000 for a car. We tend to pay for those investments over time. That doesn’t mean that you buy an umbrella, lunch or tennis shoes the same way.
This is a significant shift for large businesses, particularly around distributed computing. It can enable elastic growth without missing opportunities for periods of increased use and it doesn’t waste resources for the majority of the time when the extra resources are not needed.
There are risks associated with the Cloud and the historical paradigm of
- Best Practices
continue to be a necessity to mitigate risks while taking advantage of the Pay-as-you-go and performance elasticity advantages of the Cloud and CSPs.