Cloud TCO is Often Lower—But How About that Killer ROI?

In a recent blog, Getting Your CEO to Say Yes to the Cloud, we talked about how the cloud, when done right, is most always cheaper. That is the total cost of ownership (TCO) side of the equation. But what about ROI? What about cloud ROI indeed. Here the proof of cloud economic supremacy is even more compelling.

Let’s get started with a recognized ROI expert—Nucleus Research, an ROI consultancy that began developing IT ROI models in 2000 and has been analyzing cloud payback for a decade—since 2012 to be exact. Let’s go back those ten years and see what kind of cloud payback the ROI brainiacs from Nucleus found. Way back then, the ROI from the cloud was a full 1.7 times greater than the equivalent on-premises infrastructure. Pretty darn good.

Leap forward a mere eight years and those already impressive results grew dramatically. “In November 2020, we published the latest edition of the report, and after looking at 101 ROI case studies, we found the gap had further widened to 4.01 times,” Nucleus CEO and co-founder Ian Campbell wrote in Forbes.

Real World ROI Results

Nucleus has a unique approach to ROI. Their model is applied to real world companies and real world uses. The ‘real’ customers proved the cloud’s ROI mettle.

“Early naysayers that pointed to leasing versus buying as a reason to ‘own’ software had been proven wrong. They didn’t account for aggressive competition and relatively low switching costs of the cloud. Cloud vendors such as Salesforce are forced to contend with competition from Microsoft and Zoho at every renewal period. Software was no longer ‘locked up’ behind a large upfront expense and multiyear depreciation schedule, and selecting a vendor was no longer a career-long decision. Deployment speed was back to the top of the benefits list, and we calculated cloud solutions were 2.5 times faster to go live than on-premises solutions,” Campbell found.

Cloud Drives Strategic IT Spending

The cloud, when properly managed and governed, is generally cheaper than on-premises, and those lower costs drive ROI at a basic level. But saving money is a small tip of gigantic iceberg, especially as savings are spent on IT tools that bring competitive advantage.

However, the other game-changer is moving to the cloud itself and the economic benefits this leading-edge approach offers.

IT Efficiency Drives ROI

IT efficiency is a core ROI driver. “Like many business decisions, moving to the cloud is not all about saving money. Much of the ROI from a cloud delivery model may come from the agility that goes with faster provisioning times, improvements in service or the opportunity to support new revenue streams,” argued the Cloud ROI is More Than a Numbers Game blog by ISG.

Hot New Apps Most Always Only Cloud First

Think about the CRM apps with the best brand and mindshare. Did Salesforce come to mind? Fact is, most of the new software your enterprise relies on these days, and the solutions that bring the most excitement, are SaaS. Here are a few notable examples:

• Atlassian
• Google Analytics and G-Suite
• GoToMeeting
• Office 365 (now Microsoft 365)
• Teams
• Slack
• Workday
• Zoom

If the SaaS model is good enough for these apps, isn’t it just as able to handle your core existing IT workloads?

At the same time, these apps tend to offer brilliant ROI. Take Microsoft Teams. Forrester’s 32-page report, The Total Economic Impact of Microsoft Teams, calculated the ROI from Teams adoption to be a real wow at 832%.

ROI Grows Over Time

ROI is a moving target, and with the cloud the economic benefits build over time.

“ROI will change dynamically over time. Many organizations have shown that they begin to achieve increased organizational efficiencies and reduced costs after they reach a certain tipping point, a point at which they have moved a certain significant percentage of their infrastructure to the cloud. Being freed of the ongoing work involved with purchasing, installing, configuring and upgrading hardware pays off over months and years, but when buyers begin avoiding major tool purchases, or when they are able to close a data center, then there is often a sudden, step-wise increase in the return,” the ISG blog argues.

Cloud Governance Contains Costs and Boosts ROI

There is an interesting cloud conundrum. If the cloud is not done right, it can actually be more expensive. But as the saying goes, ‘you get what you pay for’ and even with a poorly managed costly cloud solution, the ROI can still be greater than its on-premises counterpart. Part of this is the IT efficiency we discussed earlier, and part is the productivity benefit the cloud generally offers.

How Lower Cloud TCO Boosts ROI

But to truly maximize Cloud ROI, reducing TCO is critical. Cost control comes from cloud governance. A big first step is controlling who manages the cloud, and especially who can create new workloads—workloads that are not always necessary. The answer is Role-Based Access Control (RBAC) to control and limit the ability to create these workloads.

If you are working with a cloud provider such as AWS or Microsoft Azure, you may be buying processing that is equivalent to what the actual on-premises infrastructure might represent. For instance, you can buy an Azure SKU that has the equivalent of 128 processors. IT may choose this capacity without knowing the true need or perhaps wanting to have room to grow. Instead, determine exactly what you need, and buy only that.

Once you have acquired capacity, use it efficiently and avoid buying new capacity you don’t truly need.

Containing Cloud Sprawl

Don’t think uncontrolled cloud sprawl is an issue? In an environment where the cloud is carefully managed, a developer, an IT admin or even end user department can simply place an order with the cloud provider and in minutes new workloads, apps or services are deployed at a cost than can easily crush your budget.

Now imagine that person wanted the same capacity on-prem. They’d have to order up the hardware, connect it to the network and deal with all the software issues—and need management approval to even start the project.

Guardrails are needed, such as defining who can buy cloud resources and what resources are approved for purchase. This should be controlled not just through policies but also Role-Based Access that establishes group roles for cloud resources.

A well-managed approach to the cloud makes for better results, and economics that Milton Friedman and Paul Krugman could both agree on.

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