10.06.2016
By Rob Daly

Economics Drive Cloud Adoption

Integrating cloud computing into the enterprise is no longer a choice for most Wall Street firms.

According to the fifth annual State of the Cloud survey commissioned by RightScale, 17% of enterprises have more than 1,000 virtual machines running in the public cloud, up from 14% in 2015. At the same time, 31% of the polled firms run more than 1,000 virtual machines in private clouds, which is up from 22% from 2015.

The survey’s authors also found that enterprises, on average, connect to six cloud environment, three public clouds and three private ones.

The most practical reason for adopting cloud isn’t flexibility or disaster recovery capabilities, but the simple management of the IT budget, according to industry insiders.

CIOs and CFOs are looking for ways to reduce their IT budgets, which is hard to do when as much as 95% of the budget can be fixed costs, according to Jason Tavares, US head of engineering services at Nomura Securities, speaking at a recent IT conference in Midtown Manhattan. “They might see their IT business as underperforming and want to get that off their books.”

There are relatively few ways to achieve this, especially as the demand for capacity only is increasing, he noted.

“You cannot lower costs with traditional IT,” aid Tavares. “It just doesn’t work.”

IT executives could propose that a line of business take a $50 million write-down to cover the hardware and facility costs for the new computing capacity demanded by the line of business, he added.

Fellow panelist Neal Secher, managing director, network architecture at BNY Mellon, believes that the cost models for cloud computing are a little unproven.

“I think you learn by doing,” he said. “You will find out when you start moving your applications to the cloud,” he said. “However, the biggest shift is moving computing from a capital expense to an operational expense. I’d rather move capacity to someplace where I don’t have to divorce myself from all this money upfront and then depreciate it in the long term.”

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