Steve Garone

Cloud Services and the Economics of Risk

Blog Post created by Steve Garone Employee on Nov 19, 2015

There are few who touch IT that are not aware of the strong interest enterprises have in the cloud – and there are a variety of reasons for it.  Many of them reflect an important, and likely long term, evolution as IT continues on its path to align itself with new financial models and a stronger alignment with the goals and operations of the business.


Cost containment is one of the factors leading enterprises to new types of models for how it procures and utilizes IT.  Models that tie costs to consumption continue to gain attention as a means to get IT costs to reflect business activity.  But flexibility also plays a factor here.  As more business moves to “online”, available capacity and bandwidth need to respond both quickly and cost effectively.  Traditional datacenter approaches have involved large capital investments in assets that reflect maximum required capacity, some of which may not be utilized except for peak usage times – an approach that for many is no longer viewed as acceptable from the cost perspective.  In other words, new models must reduce the economic risks to enterprises associated with the ups and downs of their business as reflected in their IT spend.

Cloud models can in many cases help mitigate these risks by first helping reduce capital costs, and then providing temporary resources when needed on a “pay-as-you-go” basis.  The success of hyper scale public cloud vendors is testimony to how popular this approach can be.  For service providers in general, however, this means that the economics of their datacenters must align with the expectations of the end users who purchase their cloud services.  It also means that their infrastructure vendor partners will be called upon to support that model with innovative financial models as well, sharing the financial risk associated with dynamic and often unpredictable IT costs with their partners.

Hitachi has created a Cloud Service Provider Program that offers its partners a number of unique and innovative financial models that address this very issue.  Recently, IDC published a white paper that demonstrates a very successful application of these types of models as part of Hitachi’s relationship with CGI, one of our cloud service provider partners.  It clearly shows how the unique financial approaches make it possible for the two companies to partner to create more innovative cloud services, and how they represent how these types of partnerships should work going forward.