Enterprise Architecture

Rent not Buy – ICT Resources

rent-versus-buy

This is the first of two articles about Rent-not-Buy.

The first about the impact on ICT Resources, the second about the impact on content.

There is zero doubt that the Cloud market is seeing a very rapid uptake among Australian businesses, you could say stratospheric. 🙂

If you take Amazon’s S3 (1) storage data volumes as a metric, it’s up 63%.

Source-+Cloudyn“Israeli provider Cloudyn, an Amazon Web Services technology partner, says its latest data from monitoring 400 AWS customers points to the Sydney S3 region already bypassing the older Singapore and Tokyo ones, despite only starting up in October last year.  Cloudyn’s figures place Sydney S3 consumption at the same level as the California region, making it the fourth largest in the world.”
Source: Cloudyn (2)

While the amount of storage isn’t a per-instance metric, it’s a great lead indicator for demand.

Rent not Buy ™
So what could drive will drive this adoption cycle further.

Rent not Buy ™

Why Cloud
There many reasons why a CTO / CIO or small business owner would choose to move their ICT resources to the Cloud …

  • Agility: The cloud model keeps your business more agile over the lifetime of the app. If IT has to specify, order, receive, install, and configure hardware for each new app, that slows your business down. A self-service interface on the Web is far faster and easier. And as the load on the app grows or spikes, you just add compute cycles, storage, and bandwidth with the click of a mouse—or even automatically with auto-scaling. When it’s time to iterate your app, you can push out the new code in minutes, with no complex IT process to get in the way.
  • Focus: Deploying apps to the cloud lets you focus on higher-value activities. For example, you can focus on hiring top-tier application developers—and these extremely competent developers can focus their time and energy on creating differentiating apps, without the distractions and time-sinks of system administration.
  • Quality: The application developers are more able to ‘try out’ other services that could be incorporated into an existing software development project.  The application developers are more able to try ‘what if’ scenarios, by spinning up test instances and then tearing them down when not used.

(3)
and the big one …

  • Cost: Cloud computing cuts costs in two main ways. The first is simply through economies of scale. Cloud service providers can offer focused expertise, standardized components and practices, and massive scalability at a far lower cost than most companies can achieve on their own.
The cost factor has some benefits
  • The ability to pay for only what you use. You no longer have to over-provision and sink capital into compute capacity (that all too often lies idle) in anticipation of future growth or as insurance against unpredictable spikes.
  • Not pouring lost dollars in capital expenses such a Data Centres.

Capex V’s Opex
It is my observation that C-level managers don’t want to talk about Capex, (4) they want to talk about Opex (5).  In the ICT world, that translates into Rent-not-Buy.
Why?  The world magically resets every financial year, a new bucket of Opex allocation appears.  (Or so it would seem to a C-level manager) Most planning cycles revolve around the financial year with a planning cycle of 3 to 4 years (6) The move to an Opex based conversation also greatly aids any cost reduction conversation, without having to delve into the murky waters of deprecation.

The planning assumption is that there is a “bucket-o-cash” available from deprecating ICT capital items.  In a perfect world this would be true, however in most cases the cupboard is bare.

ICT Debt
This has given rise to the term ICT Debt (8), in its strict definition it applies to the lack of invest in refreshing applications, but I believe the same concept applies to ICT infrastructure.

The business assumes that ICT resources are capital items like manufacturing machinery or tools. However a bench drill isn’t out of date three years later and does not require planning.

To be fair, most enterprise level business do have a server fleet replacement program, which does have a carry over budget, however, think of the time spent and planning cycles burnt on just replacing what was already there.

As every real estate agent will tell you, “Rent is dead money,” however, it’s the opposite in the ICT world.

Gartner’s made the statement: “8 out of 10 dollars spent on IT is ‘dead money,’ because it goes to just keeping the lights on.” (7)
The article talks about the cost of just maintaining current  ICT operational output and highlights the need to innovate.

The problem being, where’s the cash flow coming from to innovate?

The Cloud yields benefits such as Agility, Focus, and Quality, but does it really deliver cost savings to justify the continuous Opex spend of Cloud base services?

The Commonwealth Bank (CBA) would say yes, 40% in fact (9).

The CBA is a great example of Cloud use.  Their use case demonstrates above benefits and (it’s a very big ‘and’) do it in a super secure and highly available way.

Why Rent -not-Buy ?
So why Rent not Buy ICT Resources

  • Frees up cash flow for innovation
  • Harness the benefit of moving to the Cloud
  • Smooth out the cost cycle
  • More predictable planning cycle.
Next article is about Rent not Buy for content, or the rise of Spotify.

:-{)}

-dw

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