Cloud computing has gone mainstream and is now a part of any modern business. And yet, all too often, it’s treated as a “nice to have” or procured using approaches that should have been shelved years ago. It doesn’t make any sense. Why do so many businesses drop the ball when purchasing Cloud services?
When we began working with Cloud and hosting providers back in 2010, our buyer personas were almost exclusively IT directors and CIOs. The challenge we faced was convincing IT experts to make the move from on-premise servers to the Cloud. Now, we’re diving into CapEx vs. OpEx Cloud, and how the technology has matured.
In short, the conversation has shifted. Instead of “do or do not,” we’re looking at “who and how.”
Cloud Has Matured
Hyperscale infrastructure-as-a-service providers have grown exponentially in recent years. AWS made up more than half of Amazon’s operating income in Q2 2018, despite being little more than a tenth of their net sales. Enterprise adoption of Microsoft Azure climbed from 43% to 58%. With Gartner projecting that the global public Cloud services market will grow from $175 billion in 2018 to over $200 billion in the coming year.
There’s no secret to the success of these and other Cloud providers. They’ve made the consumption of Cloud services as easy and accessible as turning on a tap. (And we as marketers have undoubtedly helped perpetuate the values that the Cloud offers: flexibility, agility, and security.) But security and spend are still cited as the biggest barriers to Cloud adoption. Even as Cloud services have become as ubiquitous as any other utility, companies still lack the internal resources to procure, implement, and support a Cloud implementation.
And that’s where many managed service providers (MSPs) have found their niche. General Cloud expertise has been delineated into specific industry verticals, applications, and platforms. MSPs are aligning service offerings to differentiate themselves in a crowded marketplace. And businesses can access the expertise MSPs offer on an as-needed basis; rather than investing in an employee with finite skill sets.
CapEx vs. OpEx Cloud
Traditionally, IT purchases have been categorized as capital expenditures. They were fixed assets — major physical goods or services. CapEx spending typically undergoes a lengthy procurement process that involves the creation of an RFP, intense scrutiny from finance and legal departments, and final buy-in from the executive levels.
Considering that CapEx vs. OpEx Cloud can drastically shift the financial perspective on procurement, public Cloud no longer fits under that umbrella. Because public Cloud is generally offered as a pay-as-you-go model, the funds fall into the operational expenditure category — the cost of doing business that is consumed within the year it is purchased.
Let’s compare Cloud services to the company printer. There’s a reasonable chance that, at some point, your organization decided it needed a printer (or printers) to do business. Operating a printer requires the purchase of ink cartridges. But once the initial printer purchase was approved, the cost of ink falls under OpEx. Buying ink cartridges does not require the same scrutiny as the initial printer purchase.
A move to the Cloud requires the same shift. CapEx vs. OpEx Cloud decisions require a change in the procurement mindset:
- Price variations — You would expect your ink cartridges to be sold at a permanently fixed price. Variations allow your company to take advantage of competitive pricing.
- Purchasing policy — You wouldn’t stock up on ink for the entire anticipated lifespan of a printer. Purchasing policy must be set to meet demand.
- Usage parameters — Your organization has probably set out rules and thresholds for what is considered reasonable use of the printer and ink by staff, to protect against abuse or overuse. Establish consumption guidelines and Cloud governance.
- Vendor selection — You selected a printer vendor who could provide the best product for the best price, based on your requirements (and any other considerations that align with corporate goals or mandates). Perform competitor comparisons and put out an RFP.
Failing to appreciate the CapEx vs. OpEx costs of a company printer would cost your organization the ability to leverage the benefits that technology offers. Failing to differentiate between CapEx vs. OpEx Cloud leads to a very similar problem.
Recycled RFPs Don’t Work for Cloud
But as the initial “bright shiny object” syndrome of the Cloud has faded to the patina of a more established technology, organizations must develop procurement models that leverage all the benefits of Cloud. Attempting to box Cloud purchasing into old procurement strategies developed for buying servers and other on-premise infrastructure can result in over-spending.
Eager to adopt Cloud strategies, many businesses are guilty of recycling old RFPs developed meant for servers and private Clouds and using them to purchase public Cloud services. But public Cloud offers benefits and differentiators that must be accounted for to get the best-fit services for your specific application and needs. Organizations that fail to do so may unintentionally disqualify the most suitable services and providers.
Finding the Right Cloud Vendor
There are experts out there who have done whatever you’re trying to do — probably many times before. Leverage their knowledge and experience. Get help to develop the right questions for your RFP or even recommendations for service providers.
As enterprise IT’s use of the Cloud continues to mature, procurement strategies must be adapted to keep pace with demand. Not doing so can suppress innovation and force departments to buy rogue Cloud instances, perpetuating the existence of shadow IT.
1. Solicit a subject-area expert.
Generalization isn’t what you want in a Cloud services provider. Looking for a Cloud solution for your phone system? Seek out a telecom Cloud expert. There’s no need to reinvent the wheel.
2. Embrace pay-as-you-go pricing.
This model of Cloud consumption is one that many organizations struggle to get comfortable with, but demanding a fixed price undermines one of Cloud’s biggest advantages. In today’s crowded market, you’ll be well served by determining the best value as options change rather than committing to payments on fixed assets.
3. Define your application needs.
As with any successful RFP, the more well-defined your business goals, the better the proposals you receive will be. Consider vendors that best fit your current situation, rather than generalizing for all services.
4. Avoid vendor lock-in.
You should retain full ownership and total control over your data and where it’s stored. You’re not buying a physical asset, and can, therefore, expect greater flexibility and interoperability from your Cloud provider.
5. Define baselines for price and service.
Sometimes you get what you pay for. But in the crowded — and thus, competitive — Cloud market, you may find better deals than you’d expect. Short of actually testing all your applications on each Cloud vendor, your best option for performance testing is to run a series of benchmarking tests over time and correlate performance with price to find the best value. You can also look to third-party verified Cloud comparisons for up-to-date analysis of price-performance.
6. Leverage RFP software to accelerate time-to-purchase.
Cloud-based RFP platforms like DirectRFP can help accelerate RFP processing time by facilitating collaboration between procurement and IT teams, encouraging creative use of Cloud services and allowing you to leverage multiple vendors.
The Enterprise Cloud landscape has changed. Gone are the days of IT having free-reign of Cloud purchasing. To procure the Cloud services that best fit your requirements, it is critical that organizations develop a Cloud procurement process including a well planned and executed RFP. Leverage the expertise of the Procurement Department to implement the basic principles of a good RFP. Accurately define your requirements, but leave room for vendors to offer the best solutions based on their unique value and delivery of IaaS resources.
Learn how TPM can help your organization tap into the discussion around Cloud procurement and the CapEx vs. OpEx Cloud discussion. Differentiate your business and market yourself to the new Cloud buyers through smart positioning and content. Get in touch with us today.