Beyond the obvious financial benefits of cloud's subscription model, the technology's economics are relevant for other functions within an organisation as well. Historically, the departments of marketing, HR, manufacturing and procurement have often proposed new technology projects that promise new operational efficiencies or increased access to potential customers or employees. These projects and their proposed benefits may sound attractive but they often falter at the financial clearance stage. The reasons are many - the budget is too high, payback period is impossible to determine, or the internal rate of return is too low. Project financing comes in the way of executing many small or medium IT projects that may otherwise be completely aligned to a business's mission, or even necessary to stay competitive.
Cloud opens a new door for projects of this kind. It makes it possible for a marketing department to inject new efficiencies in its customer management by leasing a cloud-based CRM (customer relationship management) or sales optimisation solution. On one hand, acquiring this solution requires no upfront capital investment by the business. On the other, the typical pay-as-you-go feature of a cloud subscription allows marketing to start small, or even on an experimental basis, and then scale up as the payoff results become visible.
The runaway success of many service vendors with niche solutions developed for line functions, points to the relative ease of acquiring a cloud-based solution among line managers. For instance, experiencing growth of 150 per cent year-on-year and recognising the importance of customer experience to their competitive differentiation, MakeMyTrip was looking for a cloud solution to provide a consistent experience to its customers while dramatically scaling its business. After deploying Oracle Service Cloud, MakeMyTrip successfully reduced both agent training and number of calls to its call centre by 50 per cent. The company's net promoter score, a measure of customer loyalty, also increased by double digits.
Further, benefits of the cloud economics model can accrue outside of a subscribing organisation's boundaries. A business model that creates value through service delivery necessitates certain behaviours and practices from the cloud services provider. Customers subscribe to the service for a designated amount of time, but after that point, they are not locked into a long-term support contract and may re-evaluate its relationship with the vendor. In addition, updates to software are available in real-time, rather than paying for a costly upgrade. The general industry consensus on open standards and interoperability have reduced the risk of vendor lock-in.
Cloud vendors therefore can only compete and retain customers by delivering services of the highest quality. They must use high-end hardware and software with cutting-edge technology and ensure highest availability to their customers - just to retain them. Acquiring new customers on the other hand requires cloud vendors to clearly differentiate their services from others. Both these factors work in favour of the customer organisations who not only have continuous access to the latest and cutting-edge technology at all times, but are also first time in a position to evaluate solutions by actually test driving them within their environment, instead of sandboxed demos that vendors used to provide in the pre-cloud era.
Fundamentally, cloud changes the way IT providers and end-customers relate to their revenues and expenditures respectively. The business model shift from perpetual licensing to metered subscription is simple to explain, but profound in its impact on both providers and customers. There is continuous growth in cloud subscriptions in India and around the world, and when it comes to rational IT spending, the buck really stops at the cloud.
For a business, adopting cloud frees up significant amount of cash, which then becomes available for reuse in other strategic or operational directions. The fundamental premise of cloud is IT as a service, which allows subscription as against asset acquisition. Metered usage of IT is a borne necessity of this model and has clear advantages for all subscribers.
The cloud shifts the burden of integration and optimisation away from the customer and to the provider. That means businesses can begin to simplify IT and drive innovation because the vendor is purchasing all the parts and paying to have it all strung together, and the business instead can focus on developing fantastic shoes or wealth-management products.
The cloud also lets businesses move faster: instead of having to take 6-8 months to set up new systems, businesses can leverage the always-on nature of the cloud to get new projects and initiatives up and running in days or weeks instead of months.
Businesses have always preferred operational expenditure (opex) to capital expenditure (capex), and more acutely in times of economic uncertainty. The former allows them to make finer adjustments on a yearly basis and thus presents the best opportunity to extract maximum returns from the expenditure. Capex, on the other hand, demands relatively higher clarity and faith in future stability- both being tough asks from something as dynamic as technology in general, even more so in the current economic climate. In providing a smooth transition from a capex model of IT infrastructure to opex, cloud hits just the right notes with the finance department.
The author is Vice President, Applications Business, Oracle India
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