Cloud cost arguments are too narrow

Earlier today, Joe McKendrick said: Why cloud computing may cost more than on-premise systems. The argument seems to hinge around one contextually devoid piece from Dave Linthicum:Dave says the expenses arise because cloud requires lots of changes.

Earlier today, Joe McKendrick said: Why cloud computing may cost more than on-premise systems. The argument seems to hinge around one contextually devoid piece from Dave Linthicum:

Dave says the expenses arise because cloud requires lots of changes. “You’re going to have to redo your infrastructure, as I write in my book, to leverage newer architectural patterns, such as SOA, and that’s typically very expensive to get out and access the services that are available to you on demand, out of the cloud.” Add to this the costs involved in retraining staff and re-aligning the business.

This argument is poorly constructed and lacking a discussion around ROI and TCO. In fairness, that paragraph is followed by:

“Ultimately, you get to a much better, higher value strategic architecture which is going to add more value to the business,” Dave says. “But it’s going to cost you some additional dollars to get there.”

But...the cost argument, which tends to dominate cloud discussions, is way too narrow. Granted, in a world where traditional ideas around economics have flown out the window on the back of the Great Bailout, it is no surprise that CXO's concentrate on brute force hard dollar metrics. We're guilty of the same thinking.If we are to move the cloud debate forward then cost has to be put to one side as we consider other ROI/TCO influencing arguments.

Yesterday on my personal weblog I argued that cloud computing should be moving in the direction of providing rich analysis that displaces the accounting department's obsession with spreadsheets:

The time is right to acknowledge that the spreadsheet jocks have got a point. BUT – the vendor community needs to iterate its reporting and analytics capabilities really fast. It has to show the value of what it can deliver. I have talked about this many times but here’s a few examples that WILL get professionals champing at the bit:

  • Aggregated revenue, CoS and GPN models across industry sectors
  • Analysis of spend patterns across major items of spend, again across industry segment
  • Aggregated spend patterns for line items like telecommunications, insurance and banking fees. Why? Because that data is gold dust to the providers and if anonymized will be a sale line item for the vendors to which the on-premise guys have no access. It’s a massive opportunity.

I then went on to demonstrate how much value Intuit is delivering with its analysis of hiring trends. I said:

Intuit is now a valuable data source. It is able to not only talk to the bare numbers but offer valuable insights into the market.

It is early in the game and very few cloud app vendors are talking to the analysis issue. Some companies like Indicee are trying to break through but are finding the going tough. Examples like Intuit should provide cheering news. But there is more.

In a recent back channel discussion with Vinnie Mirchandani, he said that NetSuite's Zach Nelson saw the recession coming way before the headlines started to dominate the general news. How? Because NetSuite manages the data for more than 6,000 companies and he could tell by observing activity levels how customers' business was trending. If that doesn't get your ROI taste buds salivating then I don't know what will. As I said on my personal weblog:

...it is now down to the vendors to saddle up, put their thinking caps on and start creating and marketing solutions that will break the spreadsheet deadlock.