Against the tide: Where traditional arguments for cloud do not cut ice

Perhaps it is time to relook afresh, the reasons for adopting cloud based computing. Or atleast at fresh financial reasons.

Traditional arguments about the financial benefits of cloud will not be applicable for all business models

Ok, to be fair, may be not cloud, but atleast the reasons to go for cloud.

Recently I was chatting with quite a few senior CIOs who were attending the Annual CIO& leader conference. Naturally, the subject turned to cloud and in an interesting twist, to how the enterprise viewed investments in cloud.
One of the most interesting insights we gained was that the enterprise, particularly the CFO and the CEO are not sold on the primary selling proposition of cloud – that it turns capex to opex and brings predictability to the cash flow. The key arguments against this approach were:

1.    Cash rich Indian companies prefer capex and the associated depreciation rather than opex and predictable cash flow.
2.    In price regulated markets like with electricity, the price that the producing company can charge the consumer is a percentage of the capex invested. These companies have no incentive whatsoever for an opex model in the place of a capex one.
3.    The traditional model of valuation of a company looks at valuation of assets and not of asset conversion to opex. Therefore converting to opex is actually a disincentive for the company.
4.    Finally, the cost of money for capital purchases is lower than that for opex requirements. So, even if you are not cash rich, there is no financial incentive for going the opex route.

I was reminded of a discussion I had with a CFO on cloud based IT a couple of years back. He had told me something that I have remembered since – “I do not understand Cloud”, he said. “Tell me what is the business benefit of what you are doing. And  help me understand the associated governance issues and risks. That will help me reach a decision”
It seems that much of the approach made to CFOs and CEOs with the case for cloud has been on the wrong path, and that too in an area that they knew better than the CIOs did!

All this does not mean that cloud adoption is not happening. So, what are the key reasons why CIOs adopt cloud and cloud based solutions.

1.    The most interesting reason put forward was of managing software licensing and compliance. Cloud based software, they say, does away with the headaches associated with software license management.
2.    The second big one was for quick deployment of new projects and unplanned capacities during the course of the year.
3.    A third argument I heard was by CIOs who said they are choosing cloud for non-core applications where large upswings and downswings are likely in usage, like employee email.

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