Modern Network Architecture

Mar 19 2012   11:38PM GMT

Modern Network Architecture – The Cloud argument – Capital Expenses

James Murray James Murray Profile: James Murray

Back in the early days most business managers saw the computer as a fancy typewriter.  It seemed a little clunky.  It wasn’t as fast as the modern electric typewriters.  Yet it had one clear advantage over the typewriter.  You could correct mistakes without re-typing the entire document. 

Computers weren’t sold because of the power of databases, spreadsheets or data sharing.  Instead it was seen as a more efficient typewriter.  Now we laugh at the thought, but as we move towards the cloud will the managers of the modern network architecture be seeing the business arguments we are using now as rather silly 10 years from now? 

As we think about this then what are the benefits of the cloud?  When I talk to my Seattle It Consulting clients singing the praises of “The Cloud” the response is, “James that’s cool but what difference does it make?  How does this change everything?” 

There are many answers to this question.  Most of them go over the heads of those in the room.  To be honest, if I’ve learned anything about technology it’s that our users will find ways to use the technology in ways we never expected. Let me start with the first of two obvious answers… the first is the capital expense budget… 

The capital expense budget is the portion of the budget that pays for long term depreciable expenses such as a building, a delivery truck, an assembly line or any long term asset or expense that takes more than a year to depreciate.  The most efficient way to spend capital expense money is on assets that directly boost the bottom boost the core business value of the company.  The reality is that there are some expenses that don’t directly boost the bottom line, that require capital expenditure.  

The phone system is a classic example.  We need a phone system, but just having a phone system doesn’t directly affect the bottom in the same way as an aditional assembly line, or a delivery truck. 

The information infrastructure is a similar expense.  Just having a computer system in place affects the profitability of the organization but not in a direct way that is easy to quantify.  What this means is that these types of capital expenditure cut into the profitability of the organization by reducing the funds for capital expenditure that does directly affect the bottom line. 

By moving the systems into the cloud, the Cloud hosting provider takes on a portion or all of that capital expense.  The result is that that capital expense becomes available for the business to use to build additional assembly lines or other core business infrastructure.  The business becomes more profitable as non-core business expenses (like computers and even phone systems) are moved from capital expenditures.  These capital expenses are converted to operational overhead expenses.  The computing system becomes as benign as the water or power bill.  Important, but no longer a drain on the capital expense budget.

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