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Removing Risk and Conserving Capital via Cloud Computing

Core to the ability to preserve capital issue is the ability to upsize IT infrastructure on demand

So, I'm a computer guy.  What the heck is capital? As defined by Wikipedia it's:

"...any liquid medium or mechanism that represents wealth, or other styles of capital. It is, however, usually purchasing power in the form of money available for the production or purchasing of goods, etcetera.  Capital can also be obtained by producing more than what is immediately required and saving the surplus."

In other words, it's money in the bank that allows the business to run. Thus, the more money we have in the bank, the more we can purchase things for the core business such as inventory that can be sold, or new plant equipment that will save the company money during production. In any event, it's good to keep as much capital as possible on hand to invest in the business, and not into infrastructure such as data centers, hardware, and software.

Considering the case study above, if we need to conserve capital, than cloud computing seems to be the way to go. We pay as we use the service, there isn't  any hardware and/or software to buy, and thus we can keep the money in the bank for other purposes.

While many look at the technical value of cloud computing, the ability to preserve capital is the primary reason people leverage cloud computing from a business perspective.  Startups can launch an entire company with almost no IT expense, new divisions can be created with little IT capital investment, and as the business expands, there is no need to reinvest in hardware, software, and data center resources as the business scales up. Moreover, there is no reason to keep those capital resources around as the business scales down. With cloud computing, it's just a matter of paying more, or less, for the use of the service. We can call this the value of upsizing and downsizing on-demand.

Core to the ability to preserve capital issue is the ability to upsize your IT infrastructure on demand, or simply pay more money for additional computing capacity. Many cloud computing providers call this being elastic, or the ability to grow or contract to accommodate the business.

There are a few terms to consider here:

  • Service Tiers
  • Existing Resources
  • Ability to Scale

Service tiers refers to the fact that some cloud computing providers offer services using tiers of service, meaning that while you can purchase some capacity for $1,000 a month, the next tier up is $2,500, and the next one up from that is $5,000. They are not selling the service for a more granular billing mechanism, to say it in another way.

Moreover, you have to consider the contracts as well. While some are monthly, some are yearly, and some are both. Thus, many of those contracts can drive a commitment that may not be right for the enterprise. Be sure to read the service agreement carefully before selecting a cloud computing provider.

Existing resources refers to the fact that you may have some computing capacity around in the data center that's already bought and paid for, and thus using those resources should be considered. However, you also need to consider the costs of development and maintenance, which are typically where the real costs come in. The trick is to understand that your CIO will probably ask about those resources during the cloud computing discussions, and you need to have a well-thought-out answer.

Ability to scale refers to the ability for the cloud computing provider to actually provide the capacity you require to support the additional computing resources you'll need. While most can scale up to your needs, there are some that won't be able to handle the additional load no matter how much money you pay them. You need to determine that up front.

More Stories By David Linthicum

Dave Linthicum is Sr. VP at Cloud Technology Partners, and an internationally known cloud computing and SOA expert. He is a sought-after consultant, speaker, and blogger. In his career, Dave has formed or enhanced many of the ideas behind modern distributed computing including EAI, B2B Application Integration, and SOA, approaches and technologies in wide use today. In addition, he is the Editor-in-Chief of SYS-CON's Virtualization Journal.

For the last 10 years, he has focused on the technology and strategies around cloud computing, including working with several cloud computing startups. His industry experience includes tenure as CTO and CEO of several successful software and cloud computing companies, and upper-level management positions in Fortune 500 companies. In addition, he was an associate professor of computer science for eight years, and continues to lecture at major technical colleges and universities, including University of Virginia and Arizona State University. He keynotes at many leading technology conferences, and has several well-read columns and blogs. Linthicum has authored 10 books, including the ground-breaking "Enterprise Application Integration" and "B2B Application Integration." You can reach him at david@bluemountainlabs.com. Or follow him on Twitter. Or view his profile on LinkedIn.

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