Managing TCO Changes for Cloud IT Infrastructure

Heads up to our research subscription clients: Saugatuck has just published a Strategic Perspective that complements and extends the research and guidance presented in our recent (1187SSR, Understanding Cloud Infrastructure Costs: Navigating for Savings, 07Mar2013).

The fundamental motivation for this latest Strategic Perspective stems from an elementary business precept which holds that the best surprise is no surprise. Our objective is to provide sufficient insights and guidance regarding TCO models for Cloud versus traditional IT, so as to avoid surprises such as unplanned costs or inappropriate tradeoff between optional functionality and additional cost.

Our key guidance is as follows: Any useful TCO model must be structured to encompass the dependencies and inter-dependencies across the entire Cloud IT stack, and throughout the entire IT workload being assessed for Cloud suitabilities.

The relative sizing of Capital, Labor, and Fee costs has been a distinguishing characteristic of various IT architectures, configurations, and systems. For example, traditional data centers are typically capital-intensive and labor-efficient. Meanwhile, distributed systems have typically had higher labor costs and lower capital costs.

Cloud IT brings another shift in the relative sizing of these costs. As the names of many Cloud offerings suggest (e.g., Infrastructure-as-a-Service, Software-as-a-Service) capital costs and labor costs are supplanted by costs for services, i.e., fees. As a result: Fees, a relatively minor component in traditional IT costs, become the dominant component in Cloud IT infrastructure costs.

Saugatuck analysis finds that: the high-level categories of Capital, Labor and Fees still represent the whole cost structure of Cloud IT, and that the fundamentals of TCO do not change with the advent of Cloud IT. However, the grouping of cost elements and how they are identified can be different for Cloud IT. As mentioned earlier, a traditional IT architecture consists of assets, tasks, and services; while Cloud architecture is dominated by services or fees. So the costs for Cloud IT will have different line items than the model for traditional IT.

Since enterprise IT organizations are increasingly considering adoption of Cloud-based offerings, evaluations are focused on the costs associated with a traditional infrastructure approach compared to the costs associated with a Cloud-based offering. Given the change in cost line items, as described above, it is critical for any comparison to carefully ensure that cost line items are appropriately grouped and compared.

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Charlie Burns

About Charlie Burns

Charlie Burns is a Vice President for Saugatuck Technology, focusing on enterprise software, business/IT services, and IT systems technologies and management. With over 35 years of experience in the Information Technology arena, Charlie is an established expert in IT product and marketing management, and in IT user issues and requirements. After 26 years with IBM, where he held positions in sales, product development and large systems product marketing, Charlie left to become Research Director at Gartner Group in 1993. In 1998 he joined Giga Information Group as Research VP. At both Gartner and Giga, he focused on large systems and the business practices of the major large systems vendors. In 2000, Charlie rejoined Gartner in a relationship management role responsible for two of its largest vendor clients. Charlie received a BS in Computer Engineering from Case Institute of Technology in Cleveland, Ohio. Over the years, he attended a variety of IBM technical and research training programs, becoming an adjunct professor focusing on product management issues.