Unleashing Business Opportunity through the Power of Consumption
Cloud computing and alternative, 'as-a-service' delivery models have created the ability for businesses to align their consumption tightly with demand. Now they can purchase the IT services they need, with minimal upfront risk and no long-term commitments. Consumer and B2B organisations alike are beginning to understand the true power inherent in this new model and many are making bold moves to bring the benefits of consumption economics to their businesses.
This approach is already revolutionising the development cycle for new products and services across all industries. Until recently, businesses had to invest capital in building testing and development and quality assurance environments - which can take three to six months to set up. And once the R&D teams' projects were complete, the business was left with infrastructure and capacity for which it no longer had any use - not to mention an unwelcome depreciation charge on the balance sheet. Today, businesses can buy just the amount of services they need to run a few days of testing and development from a cloud provider ... and then simply shut the environment down when it's no longer required.
The 'burstability' of the cloud is key to its ability to make businesses more agile and competitive. You can align your supply of IT services closely with seasonal demand, ramping up the level of computing resources you buy to coincide with the tax season, holidays or year-end sales drives, or for one-off events such as sporting tournaments or major breaking-news stories.
For the last few decades, only large organisations with deep pockets could afford the most sophisticated IT applications and hardware. In a new world where you pay for IT services on a per-use basis, through low-cost microtransactions, the smallest companies can afford the same systems, software tools and promotional tools as their larger counterparts.
Today, with every business able to access the same technology, it's no longer technology that will provide you differentiation - it's what you do with it that matters. Organisations can no longer distinguish themselves by virtue of their IT systems alone. SMEs are signing up for services that enable them to compete on a level playing field, asset-light start-up companies are establishing themselves quickly ... and accelerating straight to the forefront of the market.
By making their products more consumable in terms of both price and features businesses can tap into completely new markets and create alternative revenue streams. One of Dimension Data's clients, a manufacturer of software applications that run systems in research laboratories, was able to create a new market for its products by moving them to a cloud-based, software-as-a-service model. Because its software is now also available on a pay-per-use basis, it's more accessible to smaller research laboratories that are unable to spend millions of dollars on the laboratory set-up costs associated with buying the products in a traditional manner. This has enabled our client to begin targeting mid-market and lower-grant laboratories and even those with contracts to conduct fixed-term research projects. By eliminating much of the upfront costs associated with consuming its products, it's created a new stream of ongoing revenue derived from low-value, high-volume microtransactions with smaller research organisations.
The ability to better align consumption of IT services with users' demand for them is a benefit in itself; however, the ability of this new model to transform businesses' operations, lock in cost savings and even change and save lives only becomes truly realised when consumption can be automatically adjusted. Consider the following example: Dimension Data was recently approached by one of its public sector clients to develop a 'fire-ready' mobile application. The application is hosted in the cloud and provides real-time information regarding bush fires to members of the public on their mobile devices. Citizens can gain information about where fire-fronts are, and if and when it's necessary for them to evacuate the area. The development of the cloud-based mobile application was driven by the failure of the on-premise systems during the previous fire season. High volumes of traffic to the agency's website caused the site to crash ... leaving citizens with no other source of information. This resulted in tragic loss of life.
Because the new mobile solution is cloud-based, the agency can scale up computing resources to meet the additional demand on the application during the fire season. In winter, the application bills only a couple of thousand dollars a month, while in summer, at the height of the fire season, this increases to approximately USD 35,000 a month. Initially, the agency's employees provisioned and adjusted computing resources for the application manually; now, the organisation is now leveraging Dimension Data's automation technology to remove the need for human intervention. By linking the system to the bureau of meteorology's website, we've ensured that the system will automatically start to scale as weather conditions change. The system is unlikely to ever fail again as it will be geared to cope with a sudden additional load.
Automation also enables our client to lock in its savings - resources are automatically scaled back when the demand on the application is lower. There's no need to rely on individuals to remember to reduce the load or worry about who will make adjustments after hours or over weekends. With a manual approach the agency would inevitably end up provisioning capacity it didn't really need. Through this powerful, highly automated cloud model, the agency is able to meet its citizens' expectations for a high-performing, reliable service while also only truly paying for the services it requires.
Moving to a consumption-based model for delivering IT services can also unleash new levels of innovation − minus the risk. A procurement manager at a large Australian bank explains: 'Before we started leveraging the cloud for all our new projects, it was difficult to acknowledge that, despite our best efforts, certain projects just weren't going to fly. Once you've invested time and effort in designing and building the infrastructure, it's difficult to concede that an initiative isn't delivering the expected returns. At the same time, fear of failure can make business-unit leaders conservative and risk-averse to the extent that innovation is stifled. Today we can get great ideas off the ground quickly and at a lower cost - but we're also "allowed to fail". Because the investment in setting up projects is so small, individuals are prepared to scale them or even shut them down if they fall flat. But if they're successful - we can scale them up really quickly.'
Businesses that make the transition to a consumption-based model for IT services will open the door to a world of opportunity ... but there are also risks.. The journey doesn't take place overnight and businesses still have their existing infrastructure to run. Most will require assistance with cloud enablement, integration and the ongoing management of their environments. They'll need to prioritise their workloads and identify which applications are ideal candidates for a move to the cloud in the near-term. Many businesses kick-start their cloud journeys with a migration of their Microsoft® Exchange, CRM, and test and development environments. Some businesses are still 'kicking the tyres' and are not yet comfortable with the idea of running production workloads in the public cloud. They're opting instead for a private or hybrid cloud model. Whatever your level of maturity and pace of adoption, look for a provider that can work with you to build a structured migration plan to ensure you keep risk to a minimum.
The economic rationale for moving to consumption models should be relatively straightforward - pay only for what you use, when you use it. However, if you simply replicate your current architecture and resource allocation into a cloud model without selecting the right consumption model and right-sizing your workloads, you could end up paying more than you were before. Then there's pricing to consider. How do you negotiate the best deal with service providers if it's consumption-based? With the traditional model, businesses were able to negotiate substantial discounts for large contracts. If you're entering into consumption-based arrangements with your providers, how do you guarantee volume in order to secure the best price?
The longer-term benefits that this approach promises in theory are also being held back by businesses' concerns regarding the ability to extract themselves from consumption-based engagements if they feel they're no longer serving them well. How can you be sure you can retrieve and remove all your data? If you're buying your two dollars of services per month how can you be sure that doesn't ramp up to 20 dollars and you're unable to put a stop to it? These questions continue to keep IT decision-makers up at night. Security concerns can also inhibit the adoption of a consumption-based approach. Most businesses are on high alert regarding data security in the wake of recent revelations in the press regarding state-sponsored hacking. Data sovereignty and regulatory issues are particularly high on the agenda of government organisations, and the financial services and pharmaceutical industries.
We're still in the early days of a transition that's going to be as impactful on business as the Internet was, if not more so, and there's a long road ahead. Businesses need to approach this new model with careful thought and discipline. CIOs need to manage this new model to the best outcome, and every workload and operational area will come with its own requirements and governance considerations.