In the midst of some continued recent debate around the primary (and somewhat unanswerable) question of “whether organizations will realize significant savings from cloud computing”, I took a slightly different approach than those who delved into Jevons Paradox and tweeted this simple response:

Enterprises will struggle to realize significant cost savings from cloud computing because they simply can’t afford it

Subsequent to that comment, there was some immediate stirring within the #clouderati and, since I tweeted this cataclysmic follow-up…..

Enterprises don’t have $$$ for greenfield development, just $$$ for maintenance, so opportunistic is the best we can hope for

…..I have been subjected to some profoundly aghast virtual staring along with several pointed questions asking me to clarify “what precisely do you mean by that ?”

I hope this post will shed some light on how I arrived at that conclusion, but let me start by moving off the topic of cloud and reiterating an answer I recently posted on Quora, in response to the question of “What is holding back the business adoption of VDI?”

With a hat-tip to all the answers on this, which are very valid indeed, I’ll take a slightly different approach and offer up my thought that what is really holding VDI back is basically one “simple” thing. Applications.

To make VDI make any sense at all from a commercial perspective (unless you happen to be one of the major financial institutions where money is literally no object and one-to-one assigned desktops are considered de-facto in VDI) an organization must have the basic proposition that “dynamically assembled desktops and applications” is the way to go. This is simply from the point of view that it takes less resources in the data center overall and this becomes even more critical, cost-wise, if your data center(s) is collocated.

The utopian promise of VDI has always been “desktop + profile + applications” delivered on demand to the user. That’s all great and relatively achievable until you come to the applications piece. To have the dynamic applications, you really have to get deep into virtualization of the application, whether that be Citrix Streaming or MS App-V (or vmware ThinApp if you are truly mad). Only when you have ALL your applications (except maybe one or two you keep in the base desktop “gold” image) can you really attain that utopia.

Unfortunately, large organizations have hundreds and in some cases, thousands of applications, a mix of client, client/server and web apps. Assuming that there are significant numbers of non-web apps (in my experience, this is definitely the case) then there is literally a mountain to climb and an associated cost, of course, to turn all those applications into “virtualized packages”. While it wouldn’t be impossible to put together a business case to do this, I am not sure that I’ve seen a ready ROI calculator that takes all this into the equation (along with all the other components) and spits out an easily consumable, decision-leading analysis.

The answer I posted was very deliberately intended to beg a slightly rhetorical question:

“Does it make sense to spend money on testing, remediation, re-architecting, certifiying and re-deploying applications compared to what the overall savings might be ?”

Irrespective of the answer your arrive at in the context of the VDI discussion (which will of course differ on individual circumstance) I believe that the question is equally applicable to organizations (especially traditional enterprises) who are either considering, or are in the process of planning, the movement of their existing application workloads to cloud. In both cases, there is a potentially significant impact on the financial models and budgets of the Line of Business (LoB) application owners, many of whom are embedded in the business and not “controlled” by central IT. It is not unusual, in my experience, for large enterprises to have the budgets for LoB applications driven by the business, and focused largely on “keeping the lights on” rather than allocating funds for major initiatives.

By way of illustration, let me give another example from The <redacted> Company of Large Persuasion and take a look at what the example enterprise LoB spend may look like on a yearly basis.

The <redacted> Company of Large Persuasion has 55 LoB applications. 29 of them are In-House Applications (Homegrown) and 26 of them are Commercial Applications (Shrinkwrapped). Together, they form 100% of the LoB application portfolio. The application architectures range from client only, client / server through to web apps. The majority of the underlying technologies have been those employed to “build for behind the firewall”. In this example, the basis is an exploration of what it might take for the organization to plan to move application workloads to the cloud and is focused on public cloud services (IaaS and PaaS), but not a comparison of moving the LoB portfolio to pure SaaS as the types of business processes automated by the LoB portfolio are not readily available as SaaS offerings today.

The organization tracks the spend in 5 main cost categories: Product Enhancements & New Apps, Support, Maintenance, License Cost & Ammortization and Management. Below is the calculated breakdown of the overall spend. (click to enlarge)

The graphic shows the percentage over the overall spend, broken down in the 5 main cost categories. For the purposes of this illustration, the overall spend in monetary value is not the focal point. The “stand out” figure which I find particularly interesting is that there is less than 10% of the total spend in each of the In-House and Commercial Applications columns available for “Product Enhancements & New Apps”. Or put another way:

Only a maximum of 7.23% of the total LoB spend for In-House Applications and 9.39% for Commercial Applications is available for the organization to use for re-working today’s portfolio. This is the organization’s “cloud opportunity”.

Digging deeper, it would be logical to assess each of the other 4 main cost categories to ascertain whether investing non-budgeted funds to cloud-enable applications would pay significant dividends by reducing costs in those areas. My experience in assessing exactly this question is that there might be movement downwards in certain areas, but counter-intuitively, there may be movement upward in certain areas, depending on the cloud service “target” environments. Of the 4 main cost category areas (excluding Product Enhancement & New Apps) the area of Support is the most concerning. Today, I am not convinced by the argument that moving to IaaS (with Application workloads on top) will reduce the number of support resources required to efficiently operate and support the workload.

If the example above holds true for other enterprises (and I know of many, many more that have far larger and far more complex LoB portfolios than The <redacted> Company of Large Persuasion) then there is a fundamental question to be answered way before any promises of cost savings are made, let alone recognized:

Can we afford the cost of change ?

This challenge reminds me fondly of a one-time personal situation I found myself in – I will call it “Jane’s Dilemma”. My wife, Jane, once asked me to spend the equivalent of a small fortune on booking a month-long holiday to India. Her logic was that despite the significant upfront cost, it would be “cheap when we got there”. Is this the same question facing the enterprise ? Kind of. The only difference for those facing Jane’s Dilemma today in the business sense is that I could gather pretty solid empirical data on the “running costs” for the holiday, once the hairball of upfront cost was swallowed. The same might not be quite as true for the cloud. (Did someone say AWS bandwidth charges..or am I hearing voices again..)

So, with less than 10% available for “traditional” approaches to moving the enterprise forward and the assumption that asking for a blank check to re-write your LoB portfolio for “the cloud” might be met with more than a mocking glance, your innovation will have to come from elsewhere. It may lie within your organization taking a different approach to unlocking the value of the data you have within your environment today…..but that’s another story for another day.

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