Infrastructure as a Service: Ignorance is not Bliss

We asked respondents how their firm determines total cost of ownership (TCO) for their current infrastructure. Of the two-thirds who have no capability to determine TCO, my favorite response from them was, "Huh?"

The way cloud vendors price their offerings differs greatly from traditional software and technology providers.

For instance, we have a different sales process for our FinQloud R3 offering than I was accustomed to seeing from tech vendors in my past life as an analyst. Back then, the typical process for any financial services firm considering a cloud solution was marred with vague pricing tables, hidden costs and major gaps in capabilities.

Today, a financial firm gives the FinQloud team the size of their write-once-read-many (WORM) data store and its historical versus projected average growth. The FinQloud team plugs that information into a pricing model and delivers an estimate for what that amount of storage would cost for the next year: no NDA, no wink, no nod. The estimate has no room for hidden fees.

If the costs aren't low enough, then we've already failed our core value proposition, which is to provide efficient management and storage of financial data to help firms streamline operations and meet regulatory compliance requirements without making costly capital expenditures for their underlying infrastructure.. As much as we'd like to take credit for our "unique" approach to determining total cost of ownership, this method is pretty much how cloud services determine costs across other industries. Despite the ubiquitous nature of many cloud offerings, they are actually a highly-transparent business which ought to benefit the financial services community.

Cloud Survey NASDAQ OMX conducted a survey of 44 capital markets firms and technology providers in February 2013, to determine cloud adoption rates, activity and existing concerns inhibiting adoption. We asserted no bias and I conducted the research the same way I did as an analyst, begging you all for 10 minutes of your day.

INFRASTRUCTURE COST REDUCTION: These days one would be hard-pressed to find an Information Technology (IT) shop that isn't focused on reducing their infrastructure spend. In fact, I think I managed to find nearly all of these shops because only one-quarter of survey respondents indicated infrastructure cost reduction was not on the radar. Sadly, considering my current career path, that number outranks those who say they will definitely leverage cloud to reduce expenses (18.6%). Combine the "definites" with the "maybes" and 47% of organizations are looking at cloud to reduce IT expenses.

We also asked respondents how their firm determines total cost of ownership (TCO) for their current infrastructure. Of those who responded, roughly one-third had some capability to evaluate TCO. Of the two-thirds who have no capability, my favorite response from them was, "Huh?"

It makes me laugh just typing it, but I definitely see a learning curve regarding TCO as we speak with prospective users of FinQloud. Through the educational process, firms come to understand they need a level of common understanding about what infrastructure components actually cost to run internally before they can realize the value of running them in the cloud.

A common example of such a realization occurs when we generate cost for using our R3 data storage solution. Someone inevitably says, "I'm not paying much more for my existing solution," but that person is likely only factoring the license for their current WORM technology. They leave out the cost of the hardware, support and associated maintenance to run their solution.

Elastic capabilities are rarely discussed because with cloud, you can change your cost model based on expiration dates. You don't need to store everything forever in the same device. Firms I observe rarely evaluate the proper cost to access and use that information, be it for a regulatory inquiry or another need. It can be challenging to account for the"total" in the phrase "total cost of ownership."

CLOUD METRICS & CAPABILITIES: Given the relatively low level of TCO awareness, it is actually encouraging that over 21% of firms have detailed metrics comparing private and public cloud pricing.

In our discussions, we've validated that the firms considering cloud solutions are very aware of the pricing. They are also typically aware of contract terms and service level agreements. Where they tend to lack information goes back to their internal knowledge base. The most common challenges we hear time and again from potential users center around which of their applications are low hanging fruit for Infrastructure as a Service (IaaS) upgrades.

Some common questions coming from large banks with thousands of existing applications include: - How do we choose the right case study? - How do we segregate our portfolio of applications into cloud-eligible versus cloud-ineligible categories? - Which applications marginally benefit from cloud migration and what amount of effort is associated with cloud-enabling them?

The situation reminds me of my daughter trying to clean her room -- the effort required seems so overwhelming she doesn't know where to start. That's exactly where a lot of firms are with cloud adoption -- they simply don't know where and how to start.

PICK A CORNER AND START: We have a number of clients, partners, and even prospects running pilots to test the waters. Piloting a small application will not cost much and the best advice here is to first pick something that can be measured internally. You need to be able to observe a delta.

Building a business case with data points from consultants and industry analysts could easily cost more than simply picking one or two applications or storage needs and executing a pilot while running your own benchmarks against the exercise.

It would also be helpful if you conduct any necessary security analyses alongside the pilot programs, to determine whether they contain sensitive data. You'll be saving time later on, and you will have gathered enough requirements to work through any issues for the day when you need the blessing from your information security group.

Lastly, dedicate internal resources to the cloud. Adopting this technology takes ample training. Currently, lack of internal expertise at a high level within an organization is one of the biggest impediments to adoption, and ultimately, cost savings. If you know you're headed to the cloud, create internal experts. This will save you time and energy and get you on track for a successful cloud implementation.

Adam Honoré is a CEO at MarketsTech, LLC. Prior to joining MarketsTech, Mr. Honoré was the managing director at NASDAQ OMX responsible for global business development and the ISV program for FinQloud, and research director of the institutional securities ... View Full Bio