Most business leader we talk to on cloud computing are aware of the benefit of cloud computing in terms of providing them with Flexibility, scalability and financial gains. For business leaders financial gains are probably the most important aspects of their decision in moving to the cloud. So let’s understand what exactly these financial benefits are.
1. Capex is transformed to Opex
With cloud computing there is no upfront cost. This is a huge benefit for Small Businesses, Small offices/home offices and start-ups. When these types of organizations go for IT installations, they have to plan and arrange funds for IT hardware investments. Hardware like storage drives, processors, networking equipment, etc which are required as part of any IT upgrade are very costly. With cloud computing the cost of this hardware can actually be covered from the operations of the company.
Not only is this equipment very costly the configuration which is purchased will depend on the peak capacity required by any organization. So if a small business requires X storage drives, Y processors and Z networking equipment at peak capacity, it will purchase X storage drives, Y processors and Z networking equipment. However in general the average requirement would only be X/4 storage drives, Y/4 processors and Z/4 networking equipment. Hence most times the hardware is actually idea. With cloud computing you only pay for what you use. Which would mean you would pay for X/4 storage drives, Y/4 processors and Z/4 networking equipment, thus you save a lot of money.
Money has a time value. As the cloud doesn’t require any capital investment, a huge amount of money is saved and which can be re-invested for higher returns.
2. Same benefit at lower price
The cloud service provider is also able to provide the services at a price which is much lower due to economies of scale. There are 2 aspects to these economies of scale. First aspect is that the provider is able to negotiate a better deal for purchase of hardware themselves because of purchasing in bulk. The second aspect is that the provider accumulates orders from different clients. His clients share the same equipment. Also all these clients don’t operate at peak capacity concurrently. He can therefore actually purchase hardware configuration which is much lower than the peak capacity of all his/her clients and share them across clients.
He can also pass through some of these financial benefits due to economies of scale to his customers, down the value chain.
3. Manpower cost saved
Most often the IT man power is very costly. Engineers who have expertise around hardware and system administration are typically specialized and hence come at a premium. With cloud computing at least part of the cloud computing human resource cost is reduced. Though part of the cost which the cloud service provider charges his clients includes his/her human resource, this cost will still be lower due to this resource being shared across clients and due to economies of scale.
4. Saving on infrastructure cost
When small businesses or startups set up business they make huge investment on not just hardware, but also space for keeping hardware. Quite often junked hardware also keeps occupying office space. All this space is being paid for and is adding to the cost of the company. With cloud all this space gets freed up and can be productivity utilized.
There is also a huge amount saved on account for electricity charges. Typically heavy hardware like servers, processors, etc, keep running all the time, irrespective of whether they are being utilized or not. Many of this hardware are actually used for redundancy but nonetheless sucking up valuable electricity. In addition they require large amount of per unit electricity to run. All this cost goes away when small businesses migrate to the cloud.
5. Free of Cost Business Continuity Planning
Business continuity planning is an important area for all businesses, whether big or small. For small businesses or startups business continuity is an important but neglected area. Quite often they have the inclination for BCP but lack the budget. With Cloud computing these small businesses and startups can get Business continuity assurance free of cost.
Typically cloud computing service providers have multiple location acting as data centers. Quite often they mirror client data at at-least couple of locations.