Cloud Economics – Reduce your costs by 51%, while increasing your revenue

by Nick Herbert
Fujitsu
December 1, 2020

With $371.4 billion (USD)¹ being spent on cloud in 2020 and a compound annual growth rate of 17.5%² expected from now until 2025, cloud expenditure is a hot topic for many organisations. How do you know if your cloud strategy will bring you financial success?

The driving forces of cloud economics

Cloud services have gone through a number of revolutions, so have the techniques of attaining a cloud architecture. The latest statistics support the notion that a cloud strategy will support your business financial position in two ways:

Operational Efficiencies: cut your IT spend with cloud services and you could be saving $20.97M per year over a 5-year period, with a 50% reduction in spend and a 6-months payback.
Business Agilities: boost your top line revenue with the increased velocity, technology and differentiation that you can achieve with a cloud powered business architecture. Increase your top line by $36.5M, deliver features three times faster and increase developer productivity by 25%³ .

The trick to turning cloud economics to your advantage is to actively invest and attach strategic delivery plans to both of these forces. Operational efficiencies will free up capital for you to invest in achieving top line revenue growth, by delivering better customer experiences, opening in new markets, delivering via new channels, or launching new products to market, leaving your competition in your wake.

An economic forecast that you can trust?

Take a business case to your CFO with a 6-month payback, a $20.97M cost saving and a potential to deliver a $36.5M increase to your revenue and you may be asked to repeat yourself. Claiming that you can achieve this will almost certainly get you past the investment board, however delivering on these numbers will quickly become your next headache. How can you gain trust in these seemingly unrealistic numbers?

I spend my life at Fujitsu developing investment cases for new products and features to launch to market, all of which have growth hypothesis and some also deliver cost efficiencies when compared to the current mode of operation. As US President Dwight D Eisenhower once said, “Plans are nothing, planning is everything”, and the same philosophy must be applied to cloud economics. You may have a vision of your end goal, with a low cost cloud infrastructure, centered predominantly around SaaS and PaaS, providing the springboard for business agility and growth, however there will be obstacles in your way which you need to adjust for along your path.

Adopting a Lean Start-up philosophy with your cloud economics will prove to be beneficial as you progress along this path. Set out your hypothesis, define your metrics (whilst trying to avoid vanity metrics) and continually experiment, build, measure and learn through your cloud adoption journey. I recommend that you fund the value stream for your full cloud adoption delivery and use a combination of data based decisions with metrics derived from POCs with a growth board to decide the priorities.

How to maximise your returns?

Cloud represents an opportunity and a risk to your cost base. If you simply re-host to cloud with a lift & shift approach, you will be stung with a giant bill and a delayed payback period. Instead, you need a specialist team focussing on optimisation of your estate. The following is a list of things to ensure are considered in your planning:

Implement Autoscaling – Scale up and down for peaks in demand and schedule systems when they are not in use e.g. dev/test.
Architect DR without costly redundancy – Replicate your data and create your DR architecture without the need for costly hot standby systems.
Optimising and rightsizing – Your on premise workloads were likely designed to compensate for fluctuations in usage, often resulting in oversized resources. Leverage burstable and scaling cloud services to avoid this.
Optimise licenses – Pay close attention to your licenses. This can be a cost item which can increase with cloud if you are not careful, especially licenses which are tied to specific cores or CPU.
Hybrid Use benefit – Save up to 85% when you use Hybrid Use Benefit.
Consider your risk for aging systems – For example, support for Windows & SQL 2008 will be expensive unless you move to Azure or transform.
Leverage transformation – If there is a PaaS service for it… use it.
Maximise your Partner incentives – Most cloud service providers will fund a significant chunk of your cloud migration and transformation program, from discovery through to landing zones to production with discounts and credits. Make sure you know the programs and how these can offset your investment to increase your ROI.
Reserved instances – Obviously reserve your know, committed and static capacity. AWS suggests that you can save up to 72%⁴ with this tactic, Microsoft claim that you can save 80%⁵ on Azure.
Rapid adoption – What is the fastest route to cloud? For those with a VMware estate, VMware Cloud on AWS or Azure VMWare Solutions might be your quickest delivery vehicle. Faster adoption often impacts your ROI resulting in 39% savings with a rapid VMware migration.
Your managed service – Your managed service provider should be enabled with IaC and automation to increase the efficiency of your new cloud environment. These savings are often overlooked as people tend to focus on the platform costs.
Your application lifecycle and DevOps velocity – When your developers are 25%⁶ more productive, what does that do to your DevOps costs?

Deliver business agility

With all of the cost savings listed above, your business case will be shining, but what about the business impact and the top line revenue increases which can be achieved? These are often the hardest to quantify but should be included as indirect benefits at the very least. Whilst $36.5M of revenue improvements seems high, the per 100 user figure of $448,246 seems more reasonable. But how can you underpin this with real statistics based on your organisation? Consider the following:

How many more customers might you attract if you deliver features three times faster with cloud⁷?
How many more experiments can you do, within your existing budgets by leveraging cloud services?
How can you beat your competition with better, more available services and with the best customer experience in your industry? The possibilities are infinite!
How much revenue do you lose via unplanned downtime?
How much revenue do you lose via an unpredicted surge in demand, such as seasonal retail periods, or successful new customer acquisition campaigns, where your platforms grind to a halt?

How do I get there?

Whilst the cloud adoption themes are similar for most organisation, every organisation’s business priorities are different and that will influence the steps and sequence of steps which are taken to maximise your returns. The best place to start is with a Cloud Economics Accelerator from your cloud partner to create your rapid cloud business case. They are the ones who have done this before and can bring the learnings and experience to your business case. They will assess your estate, understand your business priorities, leverage their partner relationships and complete an application assessment to target the best possible return for your business.

Good luck on your cloud adoption journey!

P.S…. If you do manage to deliver $36.5M⁶ in additional revenue, please let me know! I’d love to validate that one!