Nokia analysis: Moving from legacy IT to private cloud makes financial sense

Most large enterprises can save at least 25 percent on their IT costs over five years, the analysis shows.

Proponents of the private cloud typically focus on the operational benefits it offers an enterprise -- such as flexibility, agility and the ability to scale quickly. The financial stakes, meanwhile, are often less clear. Nokia is aiming to change that with its new, IDC-validated financial analysis that lays out the cost savings achieved by moving from legacy IT to a private cloud.

After making the move, most large enterprises can save at least 25 percent on their IT costs over five years, the analysis shows. It also concludes that an enterprise can expect to break even on their investment in less than three years.

The analysis -- called the Nokia Enterprise Private Cloud TCO Model -- was validated by IDC and is the first of its kind in the industry.

"The perception is private cloud is too expensive," Michael Williams, head of Nokia's Enterprise Cloud and Financial Segment Marketing, told ZDNet. "We're trying to counter that for the entire industry, not just Nokia, to say, 'No, private cloud makes financial sense.'"

Nokia is offering a customized analysis for large enterprises free of charge from now through June.

This kind of financial analysis hasn't been done before, Williams said, because there are so many variables. "In previous efforts, you'd run into analysis paralysis," he said. "You can't take six months to justify a project... trying to estimate every cost."

To develop this model, Nokia assumed away several variables. The analysis applies to OpenStack-based private clouds built with off-the-shelf components from a range of vendors. It assumes that instead of requiring a "forklift" replacement of the IT environment, the cloud architecture sits on top of existing infrastructure as an overlay. This kind of deployment strategy minimizes changes to day-to-day operations.

"You already have a raised floor or some kind of datacenter-- that's not going to change," Williams explained. "With an SDN overlay, you're going to throw in some servers, you're going to take some out. The power's going to be the same, the cooling's going to be the same, so you don't even have to look at those costs. That really simplified the analysis."

The biggest increased cost, Williams said, is going to be migrating applications. The largest decrease in costs comes from automation.

Moving a virtual machine from one place within a datacenter is a quick process, "but then someone has to go in and hand code all the network and security settings, and that can take two or three weeks," Williams said. "But using OpenStack to coordinate that and tell both the hypervisor environment and the network environment... to do it at the same time, the virtual machine and network can be updated together literally in seconds."

The cost savings identified by the model were calculated using conservative assumptions, based on the needs of highly regulated industries like finance and healthcare. In other words, the 25 percent in savings over five years is effectively a floor.

Randy Perry, VP of Business Value Strategy for IDC, said in a statement that IDC conducted an extensive analysis to validate the Nokia Enterprise Private Cloud TCO Model.

"We are satisfied that the assumptions, all supported by 3rd party references, are reasonable and comprehensive enough to establish a fair comparison of total costs of private cloud and legacy environments," he said. "Also, the industry data and default settings fall within acceptable ranges based on IDC business value research with over 450 enterprises over the last two years. Finally, the algorithms and methodology for calculating cost savings are accurate and adhere to commonly accepted financial guidelines."

In addition to challenging perceptions about the costs of private cloud, Williams said that Nokia was motivated to build the model in order to contribute some "thought leadership" around OpenStack.

Lauren Sell, VP of marketing and community services for the OpenStack Foundation, called the model "the latest example of OpenStack community members creating valuable and validated tools that can help enterprises as they plan and execute their strategies for agile, open cloud."