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Return on Investment is Not a Reality in Cloud Computing

· Cloud Zone

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Return-on-Investment (ROI), perhaps the biggest crock-of-$%@& metric ever applied to the information technology industry. How does one measure return? If we use monetary return, then the question, “how much money did I make on my investment in a $10K server,” is relatively impossible to answer. One must consider the software run on that server, what role it’s playing in servicing customer value, etc. The answer is arbitrary; it’s a minute subcomponent of a complete capital expenditure plan directed at delivering a business service. Using an intangible metric is even more obtuse. “Gee, after we made that additional $10K investment in that server hardware the number of calls into the help desk seemingly decreased,” is bad Freakonomics at best.

ROI was created by management consultants to illustrate the relationship between investments and expenses on revenue. Then one of these quacks decided, “hey, vendors will love this tool as a means of explaining why IT management has to use their latest doohickey.” ROI is now a plague on the IT industry being used to show how spending more money now will save you money in the long run. To me this is akin to the US government paying citizens to shuck perfectly good working cars that were paid off for new working cars and additional consumer debt.

Okay, I’ll get to the point. Cloud computing is about an effective use of compute resources that provides agility and flexibility to my business in a cost-effective manner. I’m not investing in cloud computing, I’m consuming a service. Do you discuss the ROI on eating at McDonalds or having your car washed? Of course not, because there’s no ROI in using a service since using a service is not an investment. Using services is about effective use of cash flow relative as an alternative to using your own resources and assets.

You may ask, “but I’m investing in acquiring my own cloud computing infrastructure, and I’m expecting an ROI on that.” My answer, if you’re not a cloud service provider, good luck with that. Call the sales representative that sold that bill of goods to you and tell him Christmas gift will be paid for with the ROI on your new cloud infrastructure. I imagine you’ll break even on that investment just in time to need a technology refresh on those blades. If you’re investing in your own cloud infrastructure, I hope it’s because it will effectively allow you to scale certain processes that are not scaling well today and would be cost-ineffective to acquire dedicated hardware to support. Moreover, I would hope this investment is because you have some very rigid requirement that would not allow you to burst to an existing cloud service provider for that additional compute power when required.

Sorry Virginia, there is no ROI in cloud computing. If you want to compute the value of using cash to acquire a service versus doing it in-house, that would be a risk/reward or opportunity cost analysis, not an ROI. The only thing you are investing in with cloud computing is lining your cloud computing service provider’s pockets, which is okay as long as you applied the same resources and assets to an endeavor that will generate more revenue than you are spending on the service.

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Published at DZone with permission of JP Morgenthal, DZone MVB. See the original article here.

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