Billions going into the cloud: who’s going to pay for it?

Our move to Saas gathers momentum

Over the last six months, Vector has completed a number or projects enabling more and more of our solutions portfolio to be offered in a SaaS mode. Frankly, some of this has been reaction to the importance of being seen to be there in the cloud crowd. But customers are indeed beginning to ask about the availability of a hosted option for our software. This has triggered discussions with various potential hosting partners for our international customer base, and for me personally a very interesting two days at the 451 Group’s recent conference on the transformation going on in the hosting industry.

Cloud – spending boom on the supply side

I was startled to see the rate at which money is being spent to establish ‘data centers’ to participate in the move to ‘cloud computing’. Data centers is not really an appropriate term any more, as the focus is just as much on the computing platforms being provided as the data storage. With a rapidly evolving movement, as some believe the cloud movement now is, there’s bound to be mismatch between supply and demand for this resource; it’s never going to be in perfect step. But once a new building is established, the power supply secured and massive connectivity bandwidth available, then new server hardware can be installed quickly enough to match rising demand.

What may be a little harder to match up, is the cost and the revenue aspects of the cloud movement. Where are the billions coming from, that are going into the millions of square meters of new data center being erected across the US, Europe and AsiaPacific? And what payback times are the finance sources looking for?

Hosting companies need to make profits

Well it’s easy enough to see who will end up footing the bill for the industry’s attempt to re-invent itself again. Under the guise of making great savings in the end customer’s internal costs, hosting companies will not only be providing the same resources but also making their own profit from it. What was once a cost center in the end-user organization becomes a profit center in someone else’s.

We need clarity around ‘cost of non-ownership’

To try to make sense of this I’ve been looking around for credible cost-of-ownership models that justify the move to cloud computing for the end-user organizations. It took the likes of Gartner a long time to evolve cost of ownership models that illustrated the value of introducing IT asset management and software asset management disciplines. Many organizations still resist investing in those disciplines; they aren’t very exciting. The cloud may be different.

I’m going to find whatever I can on ‘cost of ownership’ – or ‘cost of non-ownership’ – modelling for cloud computing to see how we can support and advise those of our customers thinking of going down this path.