Cloud Computing Raises Total IT Expenditure: Why That's a Good Thing

For years we've heard cloud computing vendors pushing the message that cloud computing will reduce IT expenditure. It's not a surprising tactic, as vendors often aim their pitches at the area most important to organizations: expenditure. But, as Knowledge Center analyst Ben Kepes discusses here, by focusing only on the cost side of the equation, we miss so much of what cloud computing can truly offer.


I recently wrote a paper looking at the economics of cloud computing. In the paper I identified a number of economic impacts of cloud computing-reduced unit cost being one of these impacts. However, a recent blog post by Andrew McAfee that applied the Jevons Principle to cloud computing caused some consternation among commentators.

The Jevons Principle, developed in 1865, discusses the consequences of greater energy efficiency. Jevons posited that greater energy efficiency leads not to lower total energy consumption, but instead to exactly the opposite outcome: higher aggregate consumption. McAfee extended Jevons' theory to cloud computing, contending that cloud computing will, in fact, increase IT expenditure, as a falling unit price encourages increased consumption.

While McAfee may well be correct in his assertion, an argument parsed in these terms fails to recognize one vitally important feature: that cloud computing expenditure (based as it is on a rapid-scale utility model) is closely tied to bottom-line results for the business. When you spend more, you get more-and that is a good thing.

The near-instantaneous nature of cloud computing means that specific solutions can be rapidly developed, deployed, and scaled up or down, depending on their success-thus binding expenditure tightly to beneficial business outcomes. Compare this to traditional IT where fixed expenditure occurred months and years before any business benefits accrued and, owing to the capital-intensive nature of traditional IT expenditure, scaling up or down was a slow, laborious and expensive process. What business wouldn't want to spend more if that spend was tied to accelerating business results?

The ultimate question for me is not, "How much can cloud computing save?" Rather, the ultimate question for me is, "What is the return on investment that cloud computing can generate?"

Of course, singing the praises of reduced IT costs is a no-brainer for technology vendors, as it speaks to what is seemingly the No. 1 priority for IT departments: cost. But, in arguing a reduced-cost benefit, we potentially miss the opportunity to tell of the real benefit here: that cloud computing (with its ease of use, scalability and rapid provisioning) allows projects to get the go-ahead which, under traditional IT models, simply wouldn't have met the cost/benefit test.

Ben Kepes is a cloud computing analyst and the curator of CloudU, a year-long educational program about cloud computing that is sponsored by Rackspace Hosting. In the face of a myriad of marketing messages from different vendors (and multiple opinions on what cloud even is, let alone where its benefits lie), this long-term, educational series honestly and openly lays out the facts about cloud computing. Follow Ben on Twitter @benkepes.