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Cloud Benefts 101:Whats In It for You?
Mastering The Cloud in Eight
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Title: Cloud Benefts 101:Whats In It for You?
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Cloud Benefts 101: Whats in it for You? 1
Cloud ComputingDelivers Business Value Beyond ITThink back to 1997 and the buzz surrounding the Internet. Consumers and
companies were excited about the technologys potential but worried about
security, privacy, bandwidth, standards, and more. In the end, what enabled
the Internet to transorm communication and commerce? Business value.
Fast orward to 2011. Cloud computing has emerged as the next transor-
mational technology wave similar to the Internet in 1997. According to the
ndings in Sand Hills 2011 Leaders in the Cloud research study (see Ap-
pendix A or an overview), cloud computing has moved beyond hype and is
already driving enterprise strategies today. The 100 CEOs and sotware
executives participating in the study indicated robust customer demand
today and optimism or the long-term growth o the cloud computing indus-
try and their revenues rom the cloud.
As evidence that cloud computing has moved beyond hype, more than 50
percent o the surveyed sotware executives indicated their customers initi-
ated cloud projects six months ago or even earlier. In addition, 43 percent
o the executives stated their companies now orecast that cloud-based
services and products will dominate 81 - 100 percent o their revenues in
ve years. Eighty-two percent indicated that cloud oerings and strategies
in the market today are enterprise ready or close to it.
Interviews with 40 executives in Sand Hills 2010 Leaders in the Cloud
research study (see Appendix B or an overview) uncovered compelling
real-world evidence that the business value o cloud computing is tangible
and the road to enterprise cloud adoption is shorter than our surveyed ex-
ecutives had anticipated.
The implication? Companies must act now to take advantage o several
cloud benets in order to revolutionizetheirbusiness.
This white paper explores the top competitive advantages that the execu-
tives participating in Sand Hills 2011 Leaders in the Cloud survey are
achieving rom their early cloud-computing initiatives. To put this inor-
mation into even sharper ocus, the paper includes three case studies o
companies that achieved signicant return on investment, innovation, and
scalability in the cloud.
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Cloud Benefts 101: Whats in it for You? 2
Five Essential Areas Where Cloud ComputingHelps Companies Avoid Competitive MediocrityExecutives participating in Sand Hills 2011 Leaders in the Cloud survey are
achieving competitive advantages rom their early cloud-computing initia-
tives. The top ve benets they cited are as ollows:
Improvedbusinessagility
Generatedattractivereturnoninvestment
Acceleratedtimetovalue
Jump-startedinnovationprograms
Scaledthebusinessrapidly
ADVANTAGE #1:
Improve Business Agility
Business agility is the ocus o many corporate mission statements today
and thus, as Sand Hill expected, business agility was the No. 1 driver o
cloud computing adoption or 49 percent o respondents in the Sand Hill
survey (see Exhibit 1).
According to the respondents, business agility is all about accelerating
and empowering their business and allowing them to compete betterand
aster.
In the cloud, companies can create, deploy, scale, and manage cloud-based
applications much more quickly than traditional on-premise applications.
This IT agility in turn contributed to overall business agility.
Business agility
Cost efciency
Leverage core competencies and reeIT resources to ocus on innovation
Disaster recovery and businesscontinuity
Part o a green initiative
Dont know
Source:Sand Hill Group Cloud Computing Survey 2010
Exhibit 1: Top drivers of cloud computing adoption
3%
1%
0 20% 40% 60%
13%
22%
46%
49%
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Cloud Benefts 101: Whats in it for You? 3
The surveyed executive o an electronics engineering company described
the deployment o a major cloud-based nancial application as taking seven
weeks including our weeks o due diligence across their 14 oces around
the world. He estimated that a traditional on-premise application wouldhave taken more than a year to deploy.
The Platorm-as-a-Service (Paas) and highly congurable Sotware-as-a-
Service (SaaS) aspects o cloud computing also enable companies to fexibly
and quickly respond to changing business requirements.
ADVANTAGE #2:
Generate an Attractive ROI
In todays challenging economic climate, it is not surprising that 46 percent
o executives surveyed cited cost eciency as the most important driver o
cloud computing or their companies (see Exhibit 1).
The good news is that many companies reported signicant cost savings or
cloud projects compared to their traditional alternatives; in act, 91 percent
o respondents reported cost savings overall, with 62 percent realizing sav-
ings greater than 10 percent.
Some early adopters o cloud computing even reported ve-old savings in
cost. Lets do the math. Looking at an apples-to-apples cost comparison be-
tween an on-premise solution and a SaaS solution over a ve- to seven-year
period, SaaS oten proves to be 25 - 50 percent less expensivea data point
validated by several o the interviewees. The ROI case is certainly compel-
ling. Moreover, the cost benets extend beyond the need or large up-rontinvestments. SaaS costs are spread out more evenly over time, and the sav-
ings add up over the longer term. According to one CIO,
CAsE sTuDy: Cost Advantages o the Cloud
A manuacturing company was very rustrated with the cost, complexity,and poor usability o its traditional on-premise applications. The company
evaluated several on-premise applications and corresponding cloud equiva-
lents or its HR, IT problem resolution, and CRM systems. The ndings,
which include the ollowing actors, make a convincing argument or the
multiple benets o cloud applications:
25percentlowerinvestmentthanwithtraditionalapplications
70percentfewerresourcestoadminister/runtheapplicationversus
traditional applications
Whenwedidathree-yearROIanalysis,itcameouttobreakevenbetweencloudand
on-premisesolutions.Atveyearsiswhenyouseethevalueofcloud,becauseatthree
years you are typically doing hardware refreshes and software upgrades of on-premise
solutions. CIO, high-tech company
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Cloud Benefts 101: Whats in it for You? 4
25percentlowerTCO(totalcostofownership)overave-toseven-
year time rame compared to the on-premise application
40percentcostandtimesavingswithPaaSpilotproject
Impressiveimprovementsinusability,simplicity,performance,
and speed o implementation
Securityconcernsaddressedwithtotallyencrypteddatabaseplus
point-to-point security and access
ADVANTAGE #3:
Accelerate Time to Value
In business, time is money. Decisions. Development. Deployment. Every-
thing seems to happen aster in the cloudand thats good or business.
Said one surveyed business owner o a small healthcare company:
Ultimately, the all-important reason why cloud solutions will be cost-
eective is because o the return on investment: the ability to deliver value
aster to the business.
While the long-term TCO and ROI calculations underscore the bottom-line
benets o cloud solutions, executives who have experienced the power o
the cloud say that the real business benet is time to value.
In the cloud world, companies simply subscribe to a
cloud service and start using it immediately. I it doesnt
work out, they move on without having lost a lot o time
and money. The time to value or SaaS applications is a
ew weeksor less. In contrast, or an on-premise appli-
cation, a company pays 60 - 90 percent in the rst three
years; it must pay or the license and the hardware in
one lump sum, pay consultants over the rst one or two
years to congure and get it up and running, and hire an
internal team.
Consider these opportunities to save time and money in the cloud:
DevelopanddeploySaaSapplicationsinafractionofthetimeneeded
or traditional on-premise applications
Acquireinfrastructure-as-a-service(IaaS)computingresources
instantly with a credit card, rather than the months-long process o
Thebiggestdriverforusinwhywe
have75percentofourprocessesliving
outthereinsometypeofcloudservice
today is that I can produce results for
theorganizationmuchfaster. CIO,
manufacturing company
Thefasterourbusinesscaninnovateanditerate,thefasterwewillwininthe
marketplace. The business case is how long it takes us to create, deploy, scale, and
manageanapplicationtodayandhowmuchfaster,cheaper,andmoreefcientlywecan
deploy,scale,andmanageinthecloudenvironment.
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Cloud Benefts 101: Whats in it for You? 5
purchase requisitions, requests or proposals (RFPs), server installs,
and testing associated with traditional on-premise options
WritePaaSapplicationsthattakeafractionofthedevelopmenttime
o traditional application development methods
Increasespeedofadoptionandend-usersatisfactionbecauseofuser-
riendly GUIs and minimal training
ADVANTAGE #4:
Jump-Start Innovation Programs
In addition to the capacity in the cloud or testing and experimentation with
systems overall, the surveyed business executives described how the cloud
enabled them to create sandboxes or internal and external developers to
collaborate on new ideas and projects. In act, 70 percent o the executives
said their companies use cloud-based SaaS applications today (see Exhibit
2). They noted that the investment and time required to create collaborative
orums with traditional application tools is oten prohibitive.
Also, these leading cloud technology adopters shared their enthusiasm
about cloud computing reeing up their budgets rom previous domination
by contractual maintenance spending. Moving such initiatives to the cloud
allowed their companies to ocus a majority o their time and money on
innovative ways to use technology to drive business.
Iveseenskunkworksakainnovationprojectswheresmartdevelopersgureout
somethinginterestingtodowiththecloudoveraweekend.Theycomeinandshowitto
theirboss,andtheirbossisblownawaybecausetheprojecttookatenthofthetimeand
cost of what it would if done in a normal way. So it becomes the bosss religion and he will
sponsorabiggerpilotandshowthebenetstoadecisionmakerhigherupinthechain
ofcommand.Thecloudbringstogetherthesepocketsofinnovationinthecompany.We
need that. Chief architect, petroleum company
Source:Sand Hill Group Cloud Computing Survey 2010
Exhibit 2:Current and projected adoptionof cloud-based models
Sotware as aService
0
20%
40%
60%
80%
Inrastructure as aService
Platorm as aService
70%
56%
18%
24%
12%
20%
Currently
In 3 Years
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Cloud Benefts 101: Whats in it for You? 6
CAsE sTuDy: Innovation Sandbox
An e-commerce company wanted to build and prove out a lightweight devel-
opment ramework based on the companys core inrastructure or creating
innovative new cloud applications. Ater evaluating a number o options,
they built an internal cloud-based center or experimentationan innova-
tion sandbox. Driven by the desire to innovate in radically dierent ways
and to do so cost-eectively, the company put together a small team who
applied the cloud innovation sandbox to create a radically new and easier-
to-use GUI in less than a month.
The benets were immediate and included:
Providedverticalspecializationwithoutheavyinvestments
Realizedaturn-aroundtimeofweeksinsteadofmonthsorquarters
Gainedtheabilitytoexperimentwithradicaluserinterfaceandinter-
activeJavascripts
ADVANTAGE #5:
Elasticity and Scale
One o the key promises o cloud computing is its limitless capacity. Like
elastic that easily expands and contracts, companies using cloud computing
can scale up very quickly when their business demands it and also rapidly
scale down when the need is no longer present. The clouds ability to truly
deliver on the promise o limitless scaleboth up and downand do it rap-
idly is one o its dening characteristics and sets this technology apart romanything in the past.
The clouds elasticity and scale are key eatures that level the playing eld
or small and medium-sized enterprises (SMEs). These businesses can tap
into the clouds pooled resources and networked applications to deliver the
services to meet their business needs.
The cloud thus presents a signicant competitive advantage or many busi-
nessesthatexperiencecyclicaland/orunpredictabledemandpatterns.A
good example is the retail industry where seasonal shopping spikes around
various holidays can be unpredictable. The cloud enables these companies
to dynamically obtain the IT resources needed to service their peak de-
mand and then release those resources when the seasonal rush is over. Besto all, companies pay only or what they consume during a peak-use period.
CAsE sTuDy: Fluctuating Capacity Needs
A company annually conducted a month-long charitable-giving campaign.
Two years ago, it created an auction tool to sell o physical goods (shoes,
clothes, toys, urniture, etc.) and donate the proceeds to charity. This tool
is a typical three-tier Web application with a Web server, app server, and
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Cloud Benefts 101: Whats in it for You? 7
a database. The resources demanded by the application began to increase
during the auction month as the bidding deadline neared. Then the loads
would spike dramatically at the end o the month as donors scrambled to
bid beore the auction closed.
For several years, the company dealt with signicant slowdown o the sys-
tem towards the end o the auction month when usage was highest. Because
users were unable to use the system, the company lost the opportunity to
substantially increase the auction contributions each year. They always
underestimated the resources this application would consume and ound it
dicult to predict accurately how popular the auction would be. IT had to
provision or the end o the month all the hardware, storage, and network-
ing that would be needed in advance o the peak load (which was oten
incorrectly orecasted). The result was an overly expensive project, which
pushed the company to look or alternative solutions.
They soon realized the solution to their issues was in the cloud. And
ater just two weeks, they rewrote the auction application to run on cloud
inrastructure. They ran it during the month-long campaign and closely
monitored resource usage. During the last several days, the team ramped
up capacity and continued to monitor usage. They projected how popular
the auction would be and expanded capacity accordingly to accommodate
the expected load. They then continued to dynamically ne-tune resources
based on real consumption and demand.
The benets to this company o the cloud-based auction solution were tangi-
ble and compelling:
Nosystemslowdownattheendofthemonth
Contributionsraisedweretwiceasmuchasinpreviousyearsbecause
the cloud inrastructure alleviated their previously limited computing
resources
Nearly50percentinresourcesavings;eveninthedevelopmentphase,
development and testing resources were only consumed on demand
rather than sitting idle most o the time
Costsavingsacrosstheentireprojectlifecycle
This fexible cloud solution gave the company the scale it needed to service
peak auction demand with almost instantaneous scalability. Thus, they en-
joyed great fexibility, agility, and speed while saving costs at the same time.
Conclusion: Sustainable Leadership andCompetitive Advantage in the CloudSotware industry analysts oten compare todays advent o the cloud to that
o the Internet in the late 1990s. The companies that were early in embrac-
ing the Internets cost-eective and interactive capabilities in marketing,
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Cloud Benefts 101: Whats in it for You? 8
commerce, and communication in the 1990s continue today to be leaders
in their eld. Similarly, as evidenced in the three case studies cited above,
cloud leaders report their early cloud initiatives are producing business
benets that will keep their companies ahead o their competitors.
Sand Hills survey ound that many executives are already seizing this op-
portunity: 40 percent o these companies business and technology teams
are already working to drive their companys successul move to the cloud.
As the cloud technology wave hits, you, too, have a clear opportunity to lead
your company into the cloud era and realize business benets as well as the
competitive advantage o being a leading-edge cloud user.
Sand Hill recommends that companies take critical immediate steps to
ensure a successul transition to cloud solutions, as ollows:
1.EmbracechangeThe cloud represents a once-in-a-decade op-
portunity or business executives to reinvent their organizations. For
small businesses, the economic benets o consuming externally host-
ed resources and services are too compelling to ignore. Case studies
(Appendix B - Sand Hill research data) o small companies show many
with more than 80 percent o their serviceseven mission-critical ser-
vicesalready hosted in the cloud. Unortunately, not embracing the
cloud will cause long-term harm as other companies already using the
cloud are strategically better positioned or a competitive advantage.
2.Makeabusinessdecision(notanITdecision)The business
value o the cloud is impressive. Evaluate the many benets and total
cost o ownership o cloud solutions and compare them with tradition-
al alternatives. Early adopters have ound impressive cost and agilitybenets in embracing todays cloud solutions.
3.Think:cloud=outsourcingExternal clouds are simply Version
2.0 o the global trend to outsource unctionality in order to realize
business value. Thereore, it is critical that companies evaluate their
choice o a cloud vendor in the same way that they evaluate and select
an outsourcing partner. Ensure that unctionality and security require-
ments are met; review cost benets, risks, SLAs and contracts; and
choose trustworthy vendors with a good track record and the ability to
survive or the longer term.
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APPENDIX A
Overview o Sand Hill 2011 Cloud Survey
DuringJanuary-February2011,SandHillGroupconductedaresearchstudy
to gauge sotware vendors cloud outlook or the coming year and beyond.
The study utilized an online survey to gather executives impressions on the
direction o the cloud market, their cloud strategies, and customer readi-
ness or adoption.
A total o 100 sotware CEOs and senior executives responded to the
24-question survey and provided insight about their cloud revenues today
and next year, customer attitudes and readiness, and which products and
services are gaining traction. Thirty-two percent o the respondents identi-
edthemselveswithtitlesofCEO/Presidents,andanother32percentiden-tiedasVicePresidentsofsales/marketing/services.
The study also identied the long-term trends including which layers o
the cloud stack will take hold in the next three to ve years. In addition,
researchers conducted in-depth telephone interviews with some executives
to gain more insight. Participants in the initial survey as well as the ollow-
up interviews were guaranteed that their identities would remain conden-
tial in order to protect the strategic nature o the corporate inormation
provided.
A broad cross-section o sotware companies participated in the survey.
Nearly three-quarters o the respondents were rom product companies.
The executives represented primarily midsize and small companies. Thirty-
seven percent were rom companies with less than $10 million in revenues,
and 28 percent have revenue o at least $10 million but less than $250 mil-
lion. About 18 percent o the respondents were companies with greater than
$1 billion in revenues.
The ndings o this study are intended to give sotware companies direc-
tional insight as they make business decisions. Although eorts were taken
to survey a wide variety o sotware companies, the study is not necessarily
a representative sample o U.S. sotware companies.
Beyond the Hot Air: Whats really in those Clouds? 9
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Cloud Benefts 101: Whats in it for You? 10
APPENDIX B
Overview o Sand Hill 2010 Cloud
Research Study
In 2010, Sand Hill Group released a landmark research study identiying the
business value realized by companies deploying cloud-computing initia-
tives today. A two-phase interview study design uncovered both the in-depth
insight o specic customers and vendor experiences, and a quantitative
market survey provided a snapshot o cloud initiatives and priorities at a
variety o companies. The interviews and survey questioned respondents
about their current cloud initiatives, current and planned use o specic
cloud models, business benets, organizational and technical challenges,
and details o specic use cases.
In-depth Interviews
In order to gain an understanding o the cloud experience at a variety o
types o companies, Sand Hill conducted a total o 40 one-hour, in-depth
interviews. Twenty-two interviews involved CIOs, VPs o IT, systems archi-
tects, and technology directors at small, midsize, and large companies. This
group o executives represented a variety o industries, including insur-
ance and nance, energy, telecom, manuacturing, healthcare, media, and
technology.
To gain insight rom leading sotware vendors, Sand Hill conducted eight
interviews with executive-level individuals who were responsible or cloud
strategy and products within their organizations. Again, a mixture o repre-
sentatives rom large and small sotware companies was included.
Quantitative Survey
As part o the study, Sand Hill Group conducted two Web-based quantitative
surveys in collaboration with McKinsey & Co. and Tech-Web. These surveys
received a total o 511 qualied responses. Most respondents were CEOs,
CIOs, or other senior IT executives at their companies, which ranged in size
rom small businesses to global corporations.
The combination o qualitative interviews and quantitative surveys present
rst-hand accounts on the current state o cloud computing initiatives roman impressive cross-section o enterprises. However, the results may not be
reliably projectable across the universe o American businesses. Thereore,
the ndings and implications in this report are intended to provide direc-
tional guidance during product development.
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Cloud Benefts 101: Whats in it for You? 11
About Sand Hill Group
SandHillGroup(http://www.sandhill.com)providesstrategicmanagement,
investment and marketing services to emerging market leaders. Sand Hill
Group is best known or its work in the $600-billion sotware and services
market. As ounder o the Enterprise and Sotware conerence series,
Sand Hill Group has been credited with uniting the sotware business eco-
system o executives, entrepreneurs, investors and proessionals. The rm
is also the publisher o SandHill.com, the premier online destination or
strategic inormation on the sotware business. The site and its newsletters
are read by thousands o top sotware industry executives every week. Sand
Hill Group also unds primary research into key technology and business
model trends that impact the sotware business.
Copyright 2011 Sand Hill GroupThe inormation contained herein has been obtained rom sources believed to be re-
liable. Sand Hill Group disclaims all warranties as to the accuracy, completeness or
adequacy o such inormation. The Sand Hill Group shall have no liability or errors,
omissions or inadequacies in the inormation contained herein or or interpretations
thereo. The reader assumes sole responsibility or the selection o these materials
to achieve its intended results. The opinions expressed herein are subject to change
without notice. Reproduction o this report in print or electronic orm is strictly pro-
hibited without written permission rom Sand Hill Group.