ROI for Cloud is a hot topic these days and I’ve been involved in and following many interesting discussions on this topic. While there are several opinions, there seems to be an emerging consensus that ROI for Cloud solutions (if that term can be used in its traditional sense) is very different than the one used for measuring value of on-premise software investment.
During the years of my career I spent in on-premise enterprise software product marketing I’ve created and used an ROI calculator with good success, despite occasional cynicism. A typical ROI calculator took into account (usually supplied by the customer) the upfront (asset purchase, resources, etc.) and recurring costs (maintenance, skills, time, etc.) and punched out metrics (mostly qualitative) such as cost savings, productivity gains, time savings, user satisfaction and others to justify the significant upfront investment. The model works well when the IT purchase is treated as a capital expense similar to manufacturing equipment that is amortized over time.
Can this model be applied in a Cloud IT shop when all software and infrastructure is consumed as services? Would other metrics such as cost avoidance, risk/reward analysis, or cash flow analysis be better choices for measuring Cloud-related ROI? JP Morgenthal wrote a controversially titled blog claiming there is no such thing as ROI for cloud and Joe Onisick makes a similar claim in the context of private clouds. While I may not agree with them 100%, I am in agreement with the thesis that choosing Cloud is not an investment—rather displacing/mitigating large capital investments with smaller recurring expenses over time. Particularly, I like JPs’ analogy of using the decision to eat out to illustrate to make his case. Eating out (consuming a service) is avoiding investments like buying assets (groceries, ingredients, refrigerator, cooking equipment, etc.) and on-premise services/skills (cooking, preparation, serving, etc.).
What do you think? Are there other methods and metrics that you’d use to measure value of Cloud investments? I’ll update this blog in the near future based on my further research and reading.