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Cloud Computing - Hype or worthwhile

By CG IT ·
I've had this article bookmarked for a couple of weeks, mulling over all the blogs, advertising and rhetoric on Cloud Computing.

In the end, I think what Tim O'Brien, Microsoft's senior director of platform strategy says about Microsoft's business plan with their Azure Cloud offering really says about about the Cloud and why it's the big buzz word in the IT industry.

Here's what time O'Brien says in an article on Information Week by John Foley.

...Microsoft continues to get many questions from industry analysts on how it will make money in cloud services, given its 30-year history of selling software licenses at high margins. O'Brien says the answer is that Microsoft stands to gain a higher percentage of a company's overall IT spend, rather than just the money that went toward software licensing.

In other words, IT spending that formerly went toward servers, network switches, electricity, and building leases can now be funneled into Microsoft's Azure cloud. For Microsoft, that may mean "lower margins, but the volume of dollars can be bigger over time," O'Brien says. "The way you do that is deliver at scale." O'Brien says software licensing accounts for about 10% of a typical IT department's overall budget; Microsoft envisions pulling in 50% of companies' IT spend as they decommission servers and plug into its cloud.

So from John's article, Cloud Computing buzz, hype, advertising, seems to be nothing more than the latest and greatest marketing spin to get companies to spend a large chunk of their IT budgets on Clould Computing rather than their own networks.

Without really saying it, all the hype, buzz and advertising about Cloud Computing is simply CIOs aren't smart enough to realize that what the Cloud Providers are really doing to getting business to spend more of it's allocated IT budget with the Cloud vendor on a montly basis than a 3 or even 5 year one time capital outlay without the depreciation value on pretax earnings.

Maybe if those CIOs got off the latest and greatest craze or having to have the latest gadgets and treated IT like it used to be, IT costs might come down.

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Interestingly, when you look at this purely from an accounting

by Deadly Ernest In reply to Cloud Computing - Hype or ...

aspect, a lot will depend on the corporate business model.

1. A cloud computing contract would always be seen as an operational expense, costed monthly.

If a per us contract, this will vary for each month and require more accounting resources to appropriately relate the cost to one or more revenue or operational centres.

While, a period contract would be seen as a liability, as it's a contract payment to be met. This would be easier to attribute to revenue centres each month.

This is always an expensed cost, and not internally adjustable in any way; but can lessen the value of the company.

Also, actual outward cash flow (paid expenditure) is continuously done each month, regardless of actual cash flow inwards. The money MUST be set aside and paid, regardless of income for the month, and cannot be deferred at all.

2. Corporate hardware as assets, which have a portion of their depreciation attributed to operational and / or revenue centres each month in a pre determined process. The asset represents an increased worth of the company, with part of the value costed out each month.

This expense can be internally adjusted to suit corporate accounting needs, to expense the item off the books at a faster rate, or a slower rate. And replacement can be deferred for a number of accounting periods, if need be.

Also, this can be outside normal monthly cash flow. The actual payment of money will be higher, and when the asset is obtained. But no more actual cash need be handed over during the life of the asset, except for maintenance or upgrades - which extend the life.


Simply put, Cloud Computing reduces the book value of the company and increases cash flow concerns, while owned hardware increases the company value and doesn't affect actual cash flow during the life of the hardware.


Depending upon the tax set up of the company and where it's located, this can also affect the calculation of taxable earnings for each of the years involved.


I can see a good accountant, who's worried about his cash flow, or has highly variable cash flows, being against cloud computing.

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Big Brother

by oldbaritone In reply to Cloud Computing - Hype or ...

If you've ever run a start-up business, you know that cash flow can have a "crunch" sometimes.

The idea of putting IT into the hands of an out-of-state or offshore company who can shut you down completely, unilaterally, arbitrarily and capriciously should be a wake-up call to the entrepreneur.

Give me my own box; I'll make the payments, but if I'm a little late, at least there's "due process" before I'm out of business. That takes some time, and by then the cash crunch is past; I'll pay the penalties, no problem.

But give the full power to some automated process that closes my doors on the 31st or 32nd day, because some illiterate fool credited my payment to the wrong account? Idle my entire workforce on a whim?

No thanks.

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Actually, I wonder why we're discussing this at all, there have

by Deadly Ernest In reply to Cloud Computing - Hype or ...

already been a several company offering paid for cloud computer data storage for the last couple of years, and several have closed their doors at short notice, resulting in huge loses of data for most of their clients - can't remember the names, but two were photo storage, one was a music storage, and I forget what the rest were. I did see the news reports at the time, and the people who complained about the lost data. The music storage (I think it was Frog something) people even paid copyright fees, and lost the lot when the doors shut suddenly.

If they couldn't make a go of it already, then anyone able to stay in business in the long term has to be charging quite a bit to keep their doors open.

Add in the Microsoft comments in the original post - and remember, this is an organisation that's already said they want to take over control of all your computing and lock you into paying them big bucks. So why would you even think about giving them more control of your business data, buying their software is bad enough.

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That's the whole point to Cloud Computing

by CG IT In reply to Actually, I wonder why we ...

instead of relying upon an unsteady revenue stream, Microsoft and the other players, Google, Cisco, HP, IBM and Intel all want that monthly rental charge just like the telecoms get with cell phones.

As Microsoft put it, they want to grab a larger portion of the IT budget businesses allocate.

Cloud Computing isn't for providing services for the benefit of business, it's to grab an even larger share of a businesses the IT budget than they already have.

If Intel, Microsoft, IBM, Cisco, HP, Google don't do it, the Telecoms will try to with smart phones.

So the real discussion is will CIOs operate the same as CEOs putting quarterly profit margins ahead of common sense.

The answer is most likely because of the hype and advertising spin.

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In otherewords - let the BS reign -- nt

by Deadly Ernest In reply to That's the whole point to ...

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