Is the Enterprise Cloud all about Costs?

February 13th, 2012

Is the Enterprise Cloud all about cost savings? At first glance the answer seems like a straightforward yes. To an enterprise, the Cloud promises to reduce upfront investments costs required for servers and software licenses, while at the same time enable IT departments to shrink headcount. So what do the data show?
Well, surveys show the majority of enterprise Cloud adopters do see reductions in costs. But, surprisingly, the annual cost savings are quite small. Almost 60% of surveyed enterprises reported <$20K in savings. Even more interesting, only 14% of these firms downsized their IT departments while 20% actually increased their IT departments. One could argue that the cost savings will come in time as companies learn to more effectively utilize the Cloud (e.g. need to hire Cloud experts initially, headcount reductions take time). But, I have different hypothesis: The Enterprise Cloud is not about cost reduction, it’s about innovation and competitive flexibility. There are definitely cost efficiencies with the Cloud, but I believe the real value proposition to enterprises lie in the flexibility the Cloud provides. The Cloud reduces the time it takes enterprises to develop, test and deploy custom applications, thus dramatically improving time to market. For example, a normal 12-week development cycle drops to ~3 weeks in a Cloud environment. This frees resources to spend more time investigating new ideas. Thus, IT’s investment focus will shift from a maintenance (Keep the lights on.) mentality to an innovative (How do we change the game?) mentality. And, as more enterprises embrace the Cloud, this innovation flexibility will be required to remain competitive.

Ultimately, in the next five years, I predict the key adoption drivers for the Enterprise Cloud will shift from cost-based reasons to ones of innovation and competitive flexibility.

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