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The $1 Billion Problem with Private Cloud

Paul Roberts

By Paul Roberts1.15.14

Recent conversations we’ve had with C-level executives at two Fortune 500 financial services organizations revealed that they have invested significant time, energy, and budget on building their own private clouds. This is an admirable achievement, given the industry’s relatively slow adoption of cloud technologies and is a clear sign of intent from major enterprises.

The benefits of private cloud (including virtualization, data center automation, and chargeback metering) are attractive – particularly from a cost savings perspective. Yet a focus on the infrastructure layer fails to take into account the bigger picture, a picture that Enterprise PaaS completes. Let me explain.

The Customer is King

As Accenture notes in its latest high performance IT research, the priorities for high-performing companies center upon an increased focus on the customer. High-performing companies are wondering how they can deliver innovative new products, how they can find betters channels of interaction, and how they can be contextually relevant. Cost savings and productivity improvements are of secondary importance.

This is interesting because this it aligns better with the Enterprise PaaS value proposition vs. the more limited focus of IaaS/private cloud.

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Source: Accenture

Accenture’s research fully supports the views of Apprenda’s Rakesh Malhotra who also believes Enterprise PaaS is all about making money, not saving it. The cost savings and productivity improvements associated with PaaS present a nice bonus, but they are not the primary benefit.

A great example of a high performing company that has put a customer-focused vision into practice is Nike. In 2006, Nike launched its first foray into the world of customer-facing applications with the Nike+iPod collaboration with Apple. Four years later, Nike+ had grown into a complete line of products, including an iPhone app, a GPS wristband, and a social network with 5 million registered users. The significance of this product line is that it helped Nike to boost its Q4 2011 revenues by 18% over the same period in 2010. This growth –
drevil (1)which is largely attributed to the success of an innovative, software-defined product line, – equates to just under $1 BILLION.  And this is where the problem lies with ONLY addressing the private cloud/infrastructure piece of the puzzle. It helps to reduce costs and drive efficiency, but is NOT assisting with the innovation that helps generate the top line growth required to make an organization a high performer.

The Next Billion Dollar Idea

Many organizations are busy building their own version of Nike+ — in other words, the next big software-defined product that will add a cool billion to the top line. These things can take time however – especially if they are NOT using Enterprise PaaS! While high performers place emphasis on the customer and on innovation, they still need to execute! Time-to-market is therefore a huge consideration in building that Billion dollar idea.

Referring back to our C-level friends and their new private clouds, I was thinking about what they could achieve if they evolved their private clouds into full-blown Enterprise PaaS deployments. My (extremely) conservative estimate is that these organizations have 500 developers working to deliver new, game-changing applications.  Based on NYC salaries, this equates to an annual expenditure of $57.5 MILLION on a pool of development resources – probably some of the best minds in the business!

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By leveraging Enterprise PaaS (like Apprenda) those developers could be 700% more productive. This is the productivity increase we have seen at JPMorgan Chase, so there is no reason to think that it couldn’t happen at these organizations as well. Imagine that: 500 innovative minds, given a productivity boost of 700% by focusing on what they do best – rather than worrying about standards, policies, provisioning and lifecycle management. That reduction in time-to-market could be a huge factor in expediting the organizations’ achievement of a Billion dollar revenue boost…and more importantly, achieve it before someone else does.

A Final Thought

As I mentioned at the outset, embarking on a private cloud initiative is undoubtedly a step in the right direction, but a focus on the infrastructure layer of the stack fails to consider the bigger picture. There are much bigger rewards available to companies that place emphasis on the application development and management layer.

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Paul Roberts
Paul Roberts

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