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Why private cloud delivers better value than public

Private cloud arrangements can offset concerns about governance, data security and performance management

At first glance the costs of public cloud can look attractive, but a deep dive has repeatedly shown that when comparing apples with apples, private cloud will deliver better value over the long-term.

The value proposition of cloud computing is that it enables enterprises to make the shift from managing technology, to managing business processes. And in the process of making that move, fixed cost infrastructure can be reduced, freeing up more resources for activities directly related to revenue generation.

Many industry observers believe that private clouds will remain an attractive proposition for small, medium and even large enterprises for the foreseeable future. One reason for that is because a private cloud can offset concerns about governance, data security and performance management.

For many SMEs, it makes sense to start immediately with private cloud. By doing this, they avoid the distractions of running commodity hardware and software, and are able to concentrate on developing the unique value-added product or service that will be the profit generator for their company.

These companies can subscribe to a basic account application, CRM and email from their cloud provider. The compelling reason to go to a private cloud provider is simple: when there is a unique IT requirement and/or a line of business application, such as a warehouse or accounting application that needs some customisation.

Private clouds also offer enterprises an inviting way to consolidate their server rooms, reduce support costs and increase server utilisation. By adopting cloud technology to provide more of the basic infrastructure services, these businesses gain an opportunity to allocate more of their annual IT budget to spending on new systems and capabilities that will more directly impact the success and growth of their business.

Corporate IT currently spends on average 70 per cent to 80 per cent of annual budgets on operations, maintenance of on premise server rooms, and standard business applications such as ERP, CRM and other common applications.

In small business, it’s commonly the business owner or the most IT literate person in the business who spend the equivalent percentage in time, rather than dollars, on IT.

There is often an enormous amount of frustration in the use of public cloud, largely because the biggest advantage for public cloud can also quickly become a disadvantage for customers.

To keep costs down, customers have to do things the public cloud way, which can be rigid. Customisation, legacy applications and line of business applications cannot be effectively or easily catered for. Size and standardisation are both necessary to get real economies of scale.

Because cloud computing enables standardisation, the prospect of getting systems built and into production in a much more agile manner is much greater than ever before. And this IT agility can be a potent factor in driving business agility. Having the ability to try out new product ideas and explore new markets without incurring large upfront capital expenses, means many more opportunities open up.

Conversely, in-house IT is always being squeezed to save money and to cut operational budgets. They are challenged to create economies of scale that cloud providers can achieve a lot easier—without compromising the outcome.

Typical server utilisation inside corporate data centres or server rooms ranges from as low as 2 per cent up to around 10 per cent. Moving to a private cloud can raise these levels to 60 per cent or 70 per cent by negating the need to purchase additional servers as the business expands.

In addition, private clouds don’t need to be quite as automated and self-serviced as public clouds, making them a lot more flexible and customisable to meet individual businesses requirements by delivering better value through increased server utilisation and faster user provisioning.

Cloud providers allow for both online web request forms and user control panels for provisioning hosting services, but businesses still want to have human interaction between the service provider and their company.

Customisation and uniqueness of an individual business is what makes them profitable: being boxed into a public cloud offering doesn’t allow for that level of flexibility and agility.

Although the cloud is certainly a platform for managing the delivery of computer services, that view comes more from the traditional technology orientated prospective. Another way to look at cloud is from the business perspective of companies that use the cloud to support their operations.

From their point of view, the greatest benefit they gain comes not from cost savings in technology, but from the revenue they earn by being more agile and responsive to changing customer needs. The revenue they generate with faster rollout of new products and services, and successful expansion into new markets.

Businesses that consistently offer customers the right blend of products and services can consistently earn profits that are 2 per cent to 4 per cent higher (and sometimes more) than industry averages.

This service-based additional profit can be thought of as an ‘agility dividend’, and is perhaps the most promising and sustainable source of profit for companies in our real-time global economy where products by themselves are so quickly commoditised.

In addition, it’s important to remember that companies are much less self-contained and much less vertically integrated than they were 20 years ago.

Companies have been steadily outsourcing non-core activities to concentrate more of their time and money on conducting the value-added activities that create the products and services their customers buy from them.

As a consequence, most companies now depend on a network of suppliers to provide support and services. And for companies to manage the business processes effectively, they need to find ways to effectively collaborate with their suppliers. Private cloud providers are much better placed to do this, for the reasons outlined.

Your choice between public or private cloud must be one that is driven by your use of technology; the ability it offers your employees to be much more productive; and the business agility to quickly respond to your customer demands.