Cloud computing brings tremendous opportunities – but only to those who understand its economics. The traditional model of computing is “owning” rather than “consuming”. Many companies are still stuck in old ways of thinking and, as a result, make six common mistakes.
To channel the potential of the cloud, companies must learn to think differently about their financial model. By viewing the cloud in traditional terms - as a piece of equipment they own rather than something they pay to consume - businesses are making mistakes that hinder their overall success with the technology. This article outlines six of the most harmful mistakes:
- Focussing on short-term gains while neglecting long-term benefits
- In the rush to reap financial benefits, many businesses migrate applications to rapidly save on costs without taking advantage of the full scale of what the cloud offers. This then impedes their progress, as it prevents them from accessing the dynamic and most profitable benefits of the cloud. In year one, companies have the potential for a 15-25% financial improvement over day one, but they lose out when they focus only on short-term gains.
- Using capital rather than operational-expenditure economics
- Cloud is an operational expense, as users are charged for how much they use, in a shift from the traditional capital-expenditure model which involves long-term financial planning. Businesses must be able to estimate when their day-to-day usage will spike, then scale down when it is no longer needed.
- Forecasting cloud spend only on historical factors
- In estimating spend, historical data usage is no longer a reliable indicator of future performance; it’s often inaccurate by more than 20%. To more accurately budget for cloud, companies should pay attention to likely surges in customer interest and join up their thinking on business plans with cloud budgeting.
- Automatically assuming all cloud services have similar cost savings
- Businesses must match demand with need, but sometimes scaling the cloud on-demand has economic pitfalls. Companies must be able to tell the difference between when their workloads in the cloud will have an economic benefit and when they won’t.
- Expecting to use the cloud more than they do
- Businesses often use the cloud less than they’d originally projected, with most companies falling below 30% utilisation rates. To scale cloud computing resources automatically, the corresponding application architecture needs to be upgraded.
- Putting everything on the cloud
- Many companies upload everything onto the cloud even when it's unnecessarily costly. Some workloads can remain on-premise for the same price or cheaper - businesses need to be selective.
Why does this matter for businesses?
- These common mistakes highlight the need for businesses to adapt their financial models when it comes to the cloud. Otherwise, they risk making poor financial decisions. Accurately budgeting is crucial, as is being aware of the cloud’s limitations and of the occasions when using it will not profit the business.