Cloud computing is the fastest-growing computing model available over the internet. Popularly known as "the cloud," it removes the headache of spending large amounts on on-premise infrastructure, storage and software licences. Since, ini the cloud, data can be stored off-site, companies don't need to worry about physical space for servers or upgrades.
The cloud model has been a part of the IT industry for a long time. The term was first coined in 2006 by Eric Schmidt, Google's then-CEO. Since then, a series of amazing advancements on the vendor and customer sides — including enterprise cloud adoption — have further accelerated technology trends like big data and mobile computing.
Small-, medium- and large-scale enterprises alike have adopted the cloud to improve their business efficiency and productivity because the cloud's benefits — like pay-per-use, flexibility, scalability and reliability — all contribute to economic growth.
Here are 5 economic benefits of cloud computing:
1. Business Agility
Cloud computing helps the enterprise achieve business agility.
This means organizations can deploy their applications faster and leverage cloud computing services on-demand, such as the ability to scale up or down as required. This decreases time to market, which leads businesses to capture more market share and revenue growth.
2. Global Access to IT infrastructure
In cloud computing, IT infrastructure is globally accessible. That means enterprises worldwide can easily access cloud services over a reliable internet connection. This can help accelerate economic growth in remote regions, where IT infrastructure doesn't exist.
For example, small businesses based in North America can use cloud-based services in Africa, India or Latin America to more effectively compete with bigger companies in nearby countries. This allows them to focus on running their business instead of worrying about their IT infrastructure. (Also read: Local SEO: Why Does it Matter for My Business?)
3. Cost Efficiency
Cost efficiency comes from the concept known as "economies of scale." "Economies of scale" means the average purchase cost per unit decreases with the increase in volume or magnitude. In other words, the more of an item you buy, the less each one costs.
Organizations moving from an on-premise model to a public cloud environment can achieve these economies of scale by:
- Taking advantage of the increased efficiency that comes from multiple tenants sharing computing resources.
- Renting, rather than owning, hardware and other IT assets.
Moreover, upfront capital expenditure can be avoided by using cloud services. The pay-per-use model many cloud services employ is very cost-efficient, which can be a major benefit for small- and medium-sized businesses (SMBs). Boosting SMBs helps boost the economy, so the cloud's cost-efficient nature is an economic win here too.
4. Innovation and Competition
Before cloud computing was introduced, it was nearly impossible for SMBs to explore new opportunities. This was mainly because it simply cost too much to acquire the required infrastructure and resources. And even if they could scrape together the finds, if the risk didn't pay off, SMBs stood to lose everything.
Now, with the cloud, these small players are coming in a big way to disrupt new ideas and compete with the leaders. As a consequence, the economic growth is happening across the industry. (Also read: The Future of Remote Work: 7 Technologies to Watch.)
5. Growth and Employment
The cloud computing industry is growing rapidly, creating massive employment opportunities in different directions.
New cloud skillsets are emerging and being fulfilled by skilled professionals. Sometimes, the enterprise's existing workforce is upskilled to fill these opportunities. As a result, higher income streams are generated and subsequently economic growth prevails.
Understanding Cloud Economics
In any organization, the IT team is at the center of cloud deployment and implementation. It is essential for this team to understand cloud economics because this will help them get far better insights on the capital expenditure (CapEx) and operating expense (OpEx) models.
Your IT team should understand the cloud is not only about cutting expenses, but also about achieving business growth through an optimized model. IT team must be aware of the overall economic perspective of cloud adoption. (Also read: FinOps: Your Cloud Spend's Silver Lining.)
So, what is cloud economics?
Cloud economics can be defined as analyzing the cost and benefits of the cloud model. It also includes the economic principles supporting those analyses.
The economic analysis of cloud computing focuses on the following key points:
- Return on investment (ROI).
- Total cost of ownership (TCO), for the cloud solution and/or the on-premise infrastructure.
- Cost of migration, from on-premise to cloud infrastructure and/or from one cloud provider to another.
The secret to success in cloud economics is ensuring the enterprise fully understands the economic implications of the cloud model. Only then can a business optimize its cloud investment and achieve good ROI.
Challenges of Cloud Computing
1. Choosing the Right Model
The infrastructure-renting approach, also known as the public cloud, is attractive to many businesses starting to migrate to the cloud.
But in the long run, enterprises may pay more using the public cloud compared to a private setup. This is more likely for large enterprises who consume more rental resources over a long period of time. It's important to keep a close eye on your margins to ensure you aren't generating negative ROI.
If you discover your business is generating negative ROI renting cloud infrastructure, you may want to consider adopting a private cloud instead. Alternatively, you may choose a hybrid model, which mixes public and private clouds.
Most enterprises will have different requirements depending on their needs and the size of their business. (Also read: Public Cloud vs. Private Cloud: How to Choose.)
2. Maintaining the Cloud in Uncertain Times
During recessions, CIOs tend to be very concerned about their IT budgets and cost control. But, at the same time, cloud computing remains a priority for most organizations. In fact, CIOs expect their IT budgets to grow 4% in 2022 even if a recession hits, according to a survey by Morgan Stanley.
Although revenue growth is lower than expected during recessions, CIOs are optimistic about the future of cloud computing. Enterprises will keep a tight budget on new IT investments and try to opt for low-cost options. As a consequence, the demand for cloud services may be lower in (the) short-term, but it will grow in the long-term. Benefits like the pay-per-use model, flexibility and scalability are just too attractive for business to ignore. (Also read: How to Calculate Cloud Computing Costs.)
Continuous Optimization: A New Approach to Cloud Computing
It has been observed that, over long periods of time, some big enterprises have taken a hybrid cloud approach and moved back partially to their own custom-built infrastructure. This has significantly increased their profit margin.
Thus, it stands to reason that the best approach to cloud implementation is monitoring and optimizing cloud infrastructure continuously. When the economic benefits are diminishing, refocus your approach. This process is difficult, but not impossible — and it can prevent negative ROI. (Also read: Hyperscale Cloud Optimization and Customization.)
The cloud is here to stay and will continue to boost economic growth. While economic turbulence like recession may have a short-term impact on cloud adoption, it will be an essential part of all growth stories going forward. Thus, it's important to understand the long-term economic impact of moving to the cloud or building your own infrastructure to choose the right option for your business.
In any case, cloud economics should be a point of focus for any business trying to optimize its cloud spend and sustain growth.