Financial Drivers

Cloud transformation brings many financial benefits, including pay-per-use billing, cost reduction, and increased revenues, all of which are attractive to CFOs and financial directors.

• Cost-effectiveness

  In the traditional mode (on-premises data center), enterprises purchase IT resources such as hardware and software in advance based on the predicted service peaks. To avoid performance bottlenecks or service interruption during peak hours, enterprises usually over-purchase resources. Actual service loads fluctuate and run at the average level or below in most of the times. As a result, IT resources are idle or underutilized for a long time, causing huge waste of costs.

  In the cloud mode, enterprises flexibly purchase cloud resources required based on actual service loads and only need to pay for the resources used. They do not need to purchase a great number of hardware and software resources in advance. During service peak hours, cloud platforms can quickly add cloud resources to meet requirements. During service off-peak hours, they can release redundant cloud resources to reduce resource waste and costs. The following figure shows the comparison between the cost models of the traditional mode and cloud mode.

  Figure 1 Comparison of IT infrastructure cost models in traditional mode and cloud mode
  

  Why the cloud mode saves IT infrastructure costs can be considered from the following:

  • Pay-per-use billing: In the cloud mode, the cloud resource quantity can be automatically adjusted based on service peak and off-peak hours. Enterprises only need to pay for the cloud resources that are actually used. In the traditional mode, enterprises need to purchase and maintain a large number of hardware and software resources in advance. The pay-per-use mode avoids resource idleness and waste.
  • Economies of scale: Cloud computing is essentially an economy of scale. Cloud service providers build and operate ultra-large data centers, which have ultra-large compute and storage capabilities. Due to the large scale, cloud service providers can significantly reduce operating costs by purchasing hardware and software in batches, optimizing resource utilization, improving energy efficiency, and implementing automatic management. This way, they can provide IT resources at lower costs.
  • Reduce O&M costs: Cloud service providers are responsible for the maintenance and management of IT infrastructures. Enterprises do not need to invest a lot of labor and money in the routine O&M of IT infrastructures. In addition, cloud platforms provide intelligent monitoring systems and automatic O&M systems, which greatly improve the O&M efficiency of application systems. Enterprises can reduce the labor investment in application system O&M, further reducing the O&M labor cost. Automatic O&M also reduces the risk of human errors, thereby reducing the cost of error correction.

  Note that cost waste may also occur in the cloud mode. The part between the orange curve and the blue curve in the above figure shows the cost waste in the cloud mode. Many reasons lead to the waste. For example, cloud resources applied for during service peak hours are not released in a timely manner. In the subsequent O&M governance section, we will describe in detail how to optimize costs and perform continuously cost operations.

• Increase revenues

  Cloud computing not only reduces costs but also helps enterprises create new revenue sources:

  • Shorten time to market: Cloud platforms support quick deployment and expansion of applications to help enterprises launch new products and services faster, seize market opportunities, and gain more market share and revenue.
  • Expand new markets: The global coverage capability of cloud platforms makes it easier for enterprises to enter new markets, expand business scope, and reach a wider customer base, thereby increasing revenues.
  • Improve customer experience: Cloud platforms can provide more stable, reliable, and high-performance services. These improve customer satisfaction and loyalty, thereby increasing revenues and the customer retention rate.
  • Business innovation: The flexibility and integrated new technologies of cloud platforms support enterprises in innovating products and services, exploring new operating and business models, and exploring new market opportunities. All these create new revenue sources.
• Capital expenditure to operating expenditure

  In the traditional mode (self-built data center), IT infrastructure construction requires huge capital expenditure (Capex). Enterprises need to purchase hardware such as servers, storage devices, and network devices, and bear maintenance and update costs. This requires enterprises to invest a large amount of money at a time. Cloud services use pay-per-use billing to convert capital expenditure to operating expenditure (Opex). Enterprises only need to pay for the compute resources, storage space, and network bandwidth actually used, just like how they pay for water and electricity. This significantly lowers the initial investment threshold of enterprises, improves the capital utilization efficiency, and flexibly adjusts resource usages based on service requirements to avoid resource idleness and waste. This is crucial for budget planning and cash flow management, and also allows enterprises to respond more flexibly to market changes.

In a word, the financial advantages brought by cloud transformation are the core reasons why CFOs and financial directors embrace cloud computing. By reducing costs, increasing revenues, and converting capital expenditure to operating expenditure, cloud computing can help enterprises improve financial performance.