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CIOs architect a cloud computing business model, with watchful eye on costs

CIOs dissect the true enterprise costs and value of the cloud computing model -- and, in the process, secure that elusive 'seat at the table.'

This article can also be found in the Premium Editorial Download: Modern Infrastructure: Cloud computing in business: Find the right model:

Part one of this SearchCIO feature story on cloud computing in the enterprise delved into the facts behind one of the more common myths associated with the cloud computing business model -- that it spells the death of corporate IT organizations. In part two, writer Dina Gerdeman details the many ways in which CIOs and their IT teams are squeezing more business value from cloud computing, from vetting the cost of public cloud services to building private clouds to taking on a more strategic role in business operations.

As companies gain efficiencies in the cloud, they often look to emulate the same kind of experience in their own operations.

Forrester Research Inc.'s James Staten said he's seen a pattern at companies that use quite a bit of public cloud. Eventually many come to realize that some apps really aren't a good fit for the public cloud. Perhaps these apps sit 24x7 and rack up high bills, or they require too much monitoring. What often happens next is the company will decide to build internal systems that mirror the public cloud.

"That usually ends up being pretty effective," Staten said.

One concept that companies have borrowed from the cloud: charging per user or per department for the various IT services each department needs. This chargeback model charges each department that uses email a certain amount for that email service, for example.

In fact, IT often takes on a "broker" role, acting as the bridge between the various cloud services that are available and the departments that need those services, said Owen Rogers, senior analyst for digital economics for 451 Research. In this way, IT is able to take advantage of the scalability benefits of cloud computing, in which each department uses only the services it needs, so resources aren't wasted.

Amazon becomes like a drug. …We decided that we had learned a lot and we could go build our own private cloud and maybe do it cheaper. The first one is not cheaper, but the tenth one is.
Mark Tonnesenformer CIO, Electronic Arts Inc.

"IT is starting to sell to different departments that need services, so it has revenue streams coming in from different departments," Rogers said. "Scalability is the biggest benefit of cloud computing. That's what makes it so attractive."

These days, it is IT that is tasked with figuring out when it makes sense to keep applications under internal control and when to outsource to the cloud.

"It is IT and the CIO's role to figure out where we contribute value and where don't we contribute value, and if we don't contribute value, then good, let's get out of the way," said Jonathan Feldman, CIO for the City of Asheville, N.C. "It's liberating. You end up working on things that are meaningful, the things that matter."

For instance, Feldman had to decide whether it made sense for the city to build and maintain its own system that allowed people to pay for public parking on smartphones, but ultimately opted for a Software-as-a-Service model in which users downloaded a free app. The public flocked to the service, and parking revenue increased by 6%, he said. An IT department set up to be everything to everybody is one that's being set up for a fall, Feldman said.

"If internal IT is a limited resource, and there's more to do every day than you can get to and you're in triage mode," he said, "why would you not want to give up stuff that you're not good at, you don't have time for, and someone else could do well and inexpensively for your customer?"

Architecting a cloud computing business model that pays dividends

After experimenting with the public cloud, companies often look to gain some of the same benefits by building their own private clouds. Forrester Research noted in a study released in November 2013 that in 2014, 55% of hardware decision-makers from North American and European enterprises plan to prioritize building an internal private cloud, and 33% have already adopted private cloud.

At Electronic Arts Inc., former CIO Mark Tonnesen started by moving most of the company's applications to Amazon's public cloud -- and over time, those applications added up. With 48 separate cloud-based studios, the company at one point had about 1,500 separate agreements with Amazon.

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"The public cloud is a really good place to start because you don't know what to build and how to do it well. It was quick to get going, and it was cheap," said Tonnesen, now senior partner at consulting firm The StrataFusion Group. But over time, that convenience can become an expensive crutch.

Michael DavisMichael Davis,
CTO, CounterTack Inc.

"What you figure out over time is that Amazon becomes like a drug, and you end up waking up one day and realize you're spending a load of money on Amazon," he said. "We decided that we had learned a lot and we could go build our own private cloud and maybe do it cheaper. The first one is not cheaper, but the tenth one is."

Besides, in a private cloud, Tonnesen said, IT had the flexibility to build in certain strategic pieces that were specific to their needs. For example, the company wanted to put some custom storage solutions in place that weren't available on Amazon. And the company also built its own private cloud to collect behavioral data about its game users.

Michael Beckley Michael Beckley,
CTO, Appian Corp.

"If you were playing a golf or hockey game, we could now track where you were in the game, what you clicked on, how long it took you to move from point A to point B. We tracked all of that and kept behavior records to make the game better so we could market to people," Tonnesen said.

Indeed, the company ultimately decided that the applications that were strategic to driving new products or revenue for the business were best kept in a private cloud. Those that were not were farmed out.

"If it's something that is strategic, we didn't want anyone else to build it and manage it, because it needs to be custom to the business," Tonnesen said.

CIO role evolves with cloud adoption

The cloud has not only changed the function of IT; CIOs and other IT leaders are also seeing a shift in responsibilities. For one thing, the cloud has allowed IT department heads to take less costly risks, said Michael Davis, CTO at CounterTack Inc., a cybersecurity company that uses a mix of cloud and on-premises applications.

"The way it was for CIOs before, it took $6 million to try something and if it failed, you got fired," Davis said. "Now you may be able to try something and it will only cost you $100,000, and if it doesn't work, you can pull out of it and learn from your mistakes quickly."

Besides, the cloud has solidified that CIO seat at the table with other C-suite executives in making top-level decisions that affect future marketing and product investments.

"The budgets are much larger and there's more strategy in everything we do," said Michael Beckley, CTO of Appian Corp., a software company that sells products that work either on premises or in the cloud.. "We're in higher-level discussions with management over everything from bandwidth purchases to our cloud buys. The cloud has elevated IT's seat at the table."

About the author:
Dina Gerdeman is a Boston area-based freelance writer and editor covering business news and features.

This was first published in March 2014

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Essential Guide

IT sourcing strategy guide for enterprise CIOs
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