I am often asked -private cloud, public cloud or the old Inhouse server room? here is my take.

Technology doesn’t generate revenue for most companies. Business processes powered by technology generate revenue and profits. The management of technology has just been a means to enable the operation of business processes. Cloud computing enables companies to make this shift from managing technology to managing business processes. And in the process of making that shift, companies can reduce the fixed cost structure and redirect their money to activities more directly related to generating revenue. 

Something to bear in mind is that today, corporate IT spends 70 to 80% of their annual budgets on operations and upkeep of in-house server rooms and standard application systems like ERP,  CRM  And other common packaged applications. With smaller business it is the owner or the most IT literate person in the business that spend the equivalent in time! 

For the most part these activities don’t provide meaningful differentiation in the marketplace, nor do they provide a competitive advantage. You must remember that cloud providers invest in infrastructure and in automated systems administration capabilities in order to achieve great economies of scale and operating efficiencies. Conversely, in-house IT are always being squeezed to save money and to cut their operations budgets so they are challenged to create economies of scale that cloud providers can achieve.

By using cloud technology to provide more of these basic services, carries an opportunity to shift more of their annual IT budget to spending on new systems and capabilities that are more directly related to success and growth of their business. Cloud computing gives companies a way to both reduce costs and improve service.

Cloud computing is an opportunity to standardise the basic computing and communications infrastructure a company uses, and the standardisation offers the prospect of getting systems built and into production in a much more agile manner than ever before. And this agile use of IT can be a potent factor in driving business agility. When companies can try out new product ideas and explore new markets without incurring large upfront capital expenses, then many more opportunities open up.

For many start-up companies, it makes sense to start immediately with the use of a public cloud or private cloud. By doing this, they avoid the distractions of running commodity computer hardware and software and are able to concentrate on developing the unique value-added product or service that will be the profit generator for their start-up company. For example these start-up companies would subscribe to a accounting, CRM and email from the cloud provider.

The real compelling reason to go to a private cloud provider is when their businesses have a unique IT requirement and / or a line of business application for example a warehouse or accounting application.

Many industry analysis and for the majority that I have spoken with believe that private clouds ( as opposed to public clouds) will remain attractive to small, medium and even large businesses for the foreseeable future since they can offset concerns about governance, data security, and performance management. Private clouds also offer companies an inviting way to consolidate their server rooms, reduce support costs and increase server utilisation.

Typical server utilisation inside corporate data centres or server rooms ranges from as low as 2% up to around 10%. Going to a private cloud can raise these levels to 60% or 70% in saving the company from purchasing a lot of additional servers. In addition, private clouds don’t need to be quite as automated and self serviced as public clouds making them a lot more versatile and customisable to meet individual businesses requirements. Again delivering better value through increase server utilisation and faster user provisioning.

Cloud providers allow for both online web request forms and user control panels for provisioning hosting services, but businesses are still wanting to have human interaction between the service provider and their company. Customisation and uniqueness of the individual businesses is what makes them profitable and therefore they do not wish to be boxed into a public cloud offering. 

Size and standardisation are both necessary to get real economies of scale.  public cloud providers generally have this model and are therefore able to offer significant cost savings in other words cheaper prices.

They have data centres geographically dispersed around the world and in some cases attenuation / speed issues tend to be less significant on the basic offerings. For these reasons public cloud becomes a competitive advantage over private cloud providers if you do not have a need for a line of business application. I often come across the argument whether to use office 365, Google apps compared to the cost of going into a private cloud. At the end of the day going to a private cloud or a public cloud does give you a competitive advantage for the very reasons stated above.

Your choice must be one that is driven by your use of technology, ability to be productive and to be agile not only looking at cost. We often see enormous amount of frustration in the use of public cloud, and this is because of the very nature of their biggest  advantage which becomes a disadvantage, to keep costs down you have to work their way and customisation and legacy applications cannot be effectively catered for. 

ITonCloud is very comfortable working within all these environments as we have recognised that been able to have a  holistic approach and to be able to combine the two, we can give customers the speed, security and customisation of the private cloud with most of the cost savings of public cloud offerings.

At the end of the day although the cloud is certainly a platform for managing the delivery of computer services, that view is more from the traditional technology orientated prospective. Another way to look at cloud is from the business perspective of companies that use the cloud to support their operations.

From their point of view, the greatest benefit they gain from the cloud comes not from cost savings in technology, but from the revenue they earn by being more agile and responsive to changing customer needs, the revenue they generate with faster rollout of new products and services, and successful expansion into new markets. Instant on for new employees no matter where they are in the world making that employee productive immediately. 

In addition, it's important to remember that companies are much less self-contained and much less vertically integrated than they were 20 years ago. Companies have been steadily outsourcing non-core activities so that they can concentrate their time and money on conducting the value added activities that create the products and service their customers buy from them. As a consequence most companies are dependent on a network of suppliers that provide support and services.

And for companies to manage the business processes effectively, they need to find ways to effectively collaborate with their supplier partners and this is why we believe there is a bigger competitive advantage in using private cloud providers over public cloud providers or having your own server room.


Andrew Tucker

Andrew Tucker

CEO at ITonCloud

Serial Entrepreneur with 20 years of building successful annuity based IT professional services businesses. His goal has always been for these businesses to deliver unmatched service levels, customer value and trust. He has started, run and sold a number of successful businesses. These business range from 80 to 2000 staff with turnovers of $10mil to $400mil. Most recently Andrew has got involved with ITonCloud, a Cloud and Hosted Desktop provider. ITonCloud is proudly Australian.

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Wendy Huang

Wendy Huang , Full Time Blogger and YouTuber at A Custom Blog in 4 Minutes

Thanks for your take Andrew! I'm also very partial to cloud :D