Will Wall Street Kill the Cloud?

There is an old adage that goes: Be careful what you wish for, you might just get it. For years, Wall Street wished for cheap computing resources in order to rein in IT spending and provide more computing resources to its business lines. Two or three decades after the client-server revolution of the 80s and 90s, the industry finally received its wish in the form of cloud computing. 

The new computing architecture provides the resiliency of high-performance computing (HPC) and cost savings associated with the economy of scale to deliver the cheapest computing resources the Street has ever seen. This makes the IT people happy, because they can optimize their IT investment and no longer clog their datacenter with racks of servers that are running only at an 8 or 10 percent utilization rate. It makes the lines of business people happy because it lowers their IT spend and provides faster access to resources. However, it makes accountants and business planners nervous.

For decades, budgeting IT spending followed the typical pattern of determining which projects were in the pipeline, estimating the necessary resources needed to support those projects, adding in the appropriate fudge factor and then submitting it only to receive a portion of the resources requested.

Cloud computing has the potential of turning all this on its head. During this summer’s O’Reilly Open Source Convention (OSCON), Mark Masterson, an innovation lead and resident troublemaker at industry consultancy CSC, gave a great presentation on whether the enterprise is ready to embrace the true benefits of cloud computing. His conclusion is that the industry needs to rethink the way firms approach business and risk. Because most businesses calculate risk as the likelihood of failure multiplied by the cost of failure, the industry has spent most of its resources reducing the likelihood of failure rather than focusing on the cost of failure, according to Masterson.

Cutting Costs

Cloud computing reduces the cost of failure. Organizations can spin up test and production environments in a fraction of the time and cost that it would take using a dedicated infrastructure. This reduction in the cost of failure has led to the “fail early and often” school of thought, which says that since the cost of failure is now so low, firms should embrace taking more chances in order to come up with the next best thing. Or in other words, simply throw more things at the wall and see what sticks. If one subscribes to the Theory of Evolution, nature has been doing this for millions of years with some pretty amazing results.

Unfortunately, convincing the business heads, the CFO and accounting staff that the secret to success is more failure will be an uphill battle. Most enterprises are not run like US inventor Thomas Edison’s Menlo Park laboratory, where failure was expected. Instead, they are run using business and accounting principles that have not changed that much since their introduction in the 15th Century. More importantly, investors and Wall Street analysts prize consistent and repeatable financial results, which is antithetical to the “fail early and often” business strategy that prizes innovation.

Will most existing enterprises embrace the new strategy? It is doubtful considering the amount of cultural and business inertia that is in place. The smart money is on the start-up firms that are willing to encode this methodology into their business DNA from their inception. These will be the firms who will bring innovation to the market and eventually outpace the current industry giants.