Starting with the tech planning cycle that some enterprises start in late fall, and running into February of 2023, I got for the first time hard indication from enterprises that they were not only putting cloud projects under greater scrutiny, but even cutting back on spending for projects already approved and deployed. Public cloud revenue growth reported by the big providers has slowed, too. I’ve blogged about this, noting that enterprises have realized that 1) they aren’t moving everything or even actually moving much of anything, to the cloud, and 2) they’ve been developing cloud applications in such a way as to raise the risk of overspending.
This isn’t to say that the cloud is a universal waste of money. I’ve also noted that there is a real value proposition for public cloud computing, and it’s largely related to applications that have a highly bursty and irregular use of resources. If you self-host these kinds of applications, you have to size your server pool for the peaks, and that can leave a lot of server capacity wasted, capacity that costs you money. If you put the same applications in the cloud, the elasticity inherent in cloud services can let your hosting capacity rise and fall with load.
Some cloud proponents don’t think that’s enough. They believe that there’s a kind of intrinsic set of cloud benefits that should be considered even to the extent that they overcome situations where cloud costs are higher than data center hosting rather than lower. One article opens with a statement of this belief: “We thought cloud was all about cost savings, but that metric was wrong. We need to put a value on the agility and innovation cloud brings, not just dollars and cents.” Another asks “Why did you move to the cloud in the first place? Maybe you were thinking there would be cost savings. But even if you were wrong on that point, it’s the agility of the public cloud that has always been its primary value proposition.” Is it true that there’s more to the cloud than savings? What do enterprises themselves think, and of course what do I believe is the case?
Let’s start by exploring another quote from the first: “Cost savings is a ‘hard value’ with easy-to-measure and easy-to-define numbers. Business agility and speed to innovation are ‘soft values,’ which are hard to define and measure.” Implicitly, this means that the cloud offers a faster way for a business to use IT to address problems and opportunities. The theme here is that we’ve tried to justify moving things to the cloud by demonstrating the cloud is cheaper, when we should be looking at other justifications.
One problem is that we’re not, as I said earlier, “moving” things to the cloud as much as we are doing things in the cloud we might otherwise have done within the data center. When you are looking to cut costs, you have to move to do it, and I don’t believe that in the main the cloud is really cheaper unless you have that elasticity of load I mentioned. So part of the problem of cloud justification may be linked to an invalid vision of what we’re using the cloud for.
When people use the cloud to augment current applications, which is the dominant “hybrid cloud” model of today, what they’re doing is building an elastic, agile, front-end to their applications. In a very real sense, they’re accepting those “soft values” the article talks about. However, that hasn’t meant that they aren’t seeing a need to harden all that softness.
In the last six months, over 80% of enterprises told me that they were “now” requiring some quantification of benefits in order to approve a cloud project. Less than half said they’d required that a year ago. However, even a year ago almost 90% of enterprises said that they justified cloud adoption at least in part by savings versus deploying server/application resources in their own data centers. I could find only 6 enterprises who had ever suggested to me that they believed cloud adoption could be justified by agility and innovation speed alone, and none of my CFO contacts believed that. Since CFOs have to approve a project in most companies, that would suggest that those two values were indeed not accepted in the past. Do we have to assign a specific value, a dollar value, to both? My data suggests that we do. Can we?
We actually have been, and that’s what’s created the cloud-front-end hybrid-cloud model in the first place. Companies have been doing this for roughly four years, and when COVID and WFH hit they accelerated their cloud usage to extend application support to home and mobile workers. The fact is that for at least two years now, the majority of cloud adoption has been driven by a shift of applications toward a web-and-app delivery model. The current trend in the cloud, the trend that led to broader adoption in the last two years, is exploiting the soft-value model, but even that is running out of gas.
We don’t need to validate the soft-value model to gain cloud adoption; we did that already. What we have to do now is to fix the problems with the applications we developed, problems that likely evolved out of the fact that we didn’t impose hard targets for savings and thus overran costs. We’re doing that now, and it’s part of what’s creating the current downturn in cloud growth. The other part, as I’ve suggested, is that the initial soft-value push is running out of gas because the big impetus was WFH. We’re now agile enough for WFH, and WFH is going away.
Here’s a basic truth to consider. Almost all our business applications are designed to support office or “carpeted floor” personnel. Business agility and speed to innovation are more than speed to billing and receiving; in most cases a new product doesn’t really require any significant changes to core business systems. But that’s because what we’re calling “core business” is “core office” and the real business is off our carpeted floors, in warehouses, factories, and other often-dirty places. Truth be told, there’s a massive soft-value proposition, but it involves people we’re not even thinking about when we try to justify cloud spending.
There is about three hundred billion dollars worth of productivity enhancements that could be addressed using IT, and as I pointed out earlier blogs, the majority of this relates to “dirt floor” rather than “carpeted floor” workers, people who are directly involved in the production and movement of goods and the parts that create them. I believe these would be best addressed using a “digital-twin metaverse” model, a model that’s designed to build a virtual representation of complex real-world industrial and transportation systems. These, because they’re really edge applications and often involve movement over some distance, could be the next generation of cloud activity, creating agility where agility is really needed.
Could it be that the very place where cloud features matter the most is the place where we’ve been ignoring using IT to enhance worker productivity? Sure looks like it, and if we those soft values to matter, we need to face the place where they matter the most.