Benefits from Shifting Existing Apps to the Cloud :

In all four regions of the world, the average benefits from cloud applications of this type were impressive, especially in Latin American and Asia-Pacific companies:

  • In IT costs, 28% (Europe) to 55% (Latin America) average reductions
  • In standard applications and business processes, between 34% (Europe) and 60% (Latin America) increases in the number of apps and business processes that have been made common across a company or business
  • In cycle-time reductions to ramp IT resources up or down (a measure of “flexibility”): between 35% (U.S.) and 64% (Latin America) reductions
  • In systems downtime, 33% (Europe) to 59% (Latin America) reductions
  • In the time it takes to enhance applications, 37% (U.S. and Europe) to 57% (Latin America) reductions
  • Application fixes, from 35% (U.S.) to 64% (Latin America) reductions in the number of patches

In analytic reports, from 34% (Europe) to 66% (Latin America) increases in the number of reports, which gives companies greater ability to mine and analyze volumes of data.

For a $5 billion consumer products company, the cloud enabled one of its business functions to implement a new application without needing the typical “$10 million and 18 months to build it,” says an IT executive in the company. And the aforementioned telco hopes that standardizing applications through its private cloud data centers will help it reduce the number of those centers by 80% and save as much as $200 million in annual IT costs.


Companies Report Sizable Benefits from Launching Whole New Apps in the Cloud

  • Indication for the improvements in six areas:
  • Testing of new business processes that they would have considered too costly to test prior to the advent of the cloud (because of excessive technology costs). Here we asked them to indicate the percentage increase in new business processes tested.
  • The number of new business processes they actually launched or instituted
  • The number of new products/services they tested
  • The number of new products/services they launched
  • The annual revenue increase from launching new products/services in markets that they already served
  • The average reduction in the time it took to enter new markets with new products/services

While the average percentage improvements in these areas were about half those that companies reported from shifting on-premises applications to the cloud, they were nonetheless noteworthy:

  • Increases from 15% to 19% in the number of new business processes tested and launched in U.S., Europe and Asia-Pacific companies. Latin American companies, however, reported higher average numbers (22-27%)
  • Increases from 13% to 19% in the number of new products or services tested and launched by companies in the U.S., Europe and Asia-Pacific (which, again, trailed the 31-32% increases in new products/services in Latin America)
  • An average 14-17% reduction in cycle time to enter new markets with new products/services in the U.S., Europe and Asia-Pacific (bested again by Latin American companies, which claimed an average 35% cycle time reduction)
  • Average revenue increases of 13-17% from launching new, cloud-based products and services in existing markets (vs. an average 32% revenue increase reported by Latin American companies)

To reduce its IT costs, AOL has embraced a private cloud infrastructure over the last year. It has dramatically lowered the technology expenses of sales, marketing and customer service. Manos estimated that 20% of the company’s business applications have moved to cloud in the last six months, and that another 15% will shift by mid-year.
Biggest Barrier to Embracing the Cloud: IT People

Manos says the biggest barrier to adopting cloud technology at AOL is that IT employees worry that cloud technology will replace them. However, companies like AOL have no choice but to reduce costs in technology and other realms. ATC is a 100% “lights-out” facility, meaning it doesn’t need anyone operating the machines on its premises. Manos’ team of five people can now manage 12,000-15,000 servers that are spread across the company’s data centers. Still, the main objective is not to eliminate IT staff but rather to deploy them in jobs where they can play a more important role.
Manos has gained support for cloud computing throughout AOL, from the CEO down. Through regular emails, newsletters and meetings, CEO Tim Armstrong has gone to great lengths to make the transition transparent. Armstrong has become a big proponent of the firm’s private cloud because of the cost savings and ability to launch new Web content more quickly.

“If you would have told me nine months ago that the CEO would be talking about the technology side of the business, I would have said you were crazy,” Manos says. “But he is now saying that AOL is a technology company as well as a media company.”

Major Telco: Cloud as Game-Changer and Data Center Consolidator

This company sees cloud as a major external and internal opportunity — to sell new services to customers and induce large reductions in its technology costs as well as standardized business processes and applications software.

Top management at the telco believes that if the company wishes to get numerous customers to adopt cloud services, it must demonstrate how it has benefited from using the cloud internally. With that mandate, the company in the last two years has moved financial systems such as general ledger, payables and fixed assets to its private cloud. It is also moving human resource applications to the cloud (including the corporate email system, and employee savings and financial plans). Customer records ordering and processing will move to cloud as well. All in all, the company has moved 30% of its applications to its private clouds (data centers that it owns and operates), a number it hopes will reach 80% by year-end.

The company is moving to organize its IT architecture completely around its private clouds, with the intention of eventually putting all applications in the cloud and providing cloud services for each company business unit. Today, its business units have their own financial, HR, customer management and other systems. That, of course, results in large duplications of software, hardware and data center space that could be consolidated if business units could standardize on many fewer applications and let them run on hardware at fewer but centrally managed data centers.
If the firm can achieve this, it believes it will reduce the need for dozens of data centers (reducing the number by as much as 80%), which would achieve cost savings in the range of $100 million to $200 million.
What must the company do to reach such ambitious goals? The two biggest obstacles that we heard were “fear of the unknown” and “fear of losing control” – both coming especially from the IT functions within the company’s business units.

That said, the company believes the issue is no longer whether the company will broadly adopt cloud computing but rather how quickly it will do so. “We believe cloud is something that is going to be gaming-changing,” says one executive. “It’s going to become a way of life. I think we’re at the very beginning of this, and that many companies have a ‘toe in the water’ approach because of the security concerns.” The gating factor, he believes, is whether cloud vendors can provide a highly secure service with nearly 100% uptime.