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Cloud Benefits 101:

Whats In It for You?
Mastering The Cloud in Eight Easy Steps: Top Strategies to Rocket Your Companys Growth

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Title: Cloud Benefits 101:

Whats In It for You?
This paper accompanies Part 3 of the eight-part SAP Webinar series: Mastering The Cloud in 8 Easy Steps: Top Strategies to Rocket Your Companys Growth. Youve heard about the cloud, but youre wondering what it means to you and your business. Attend this FREE Webinar series to learn everything you need to know to master the cloud and grow your company including: Beyond the Hot Air: Whats Really in the Cloud? Cloud Benefits 101: Whats In It for You? Roadmap to Cloud Success: How to Get There? Competitive Edge in the Cloud: Is the Sky the Limit?

Click here to register for the Webinars.

This white paper was made possible by SAP, a leader in the cloud.

Cloud Computing Delivers Business Value Beyond IT

Think back to 1997 and the buzz surrounding the Internet. Consumers and companies were excited about the technologys potential but worried about security, privacy, bandwidth, standards, and more. In the end, what enabled the Internet to transform communication and commerce? Business value. Fast forward to 2011. Cloud computing has emerged as the next transformational technology wave similar to the Internet in 1997. According to the findings in Sand Hills 2011 Leaders in the Cloud research study (see Appendix A for an overview), cloud computing has moved beyond hype and is already driving enterprise strategies today. The 100 CEOs and software executives participating in the study indicated robust customer demand today and optimism for the long-term growth of the cloud computing industry and their revenues from the cloud. As evidence that cloud computing has moved beyond hype, more than 50 percent of the surveyed software executives indicated their customers initiated cloud projects six months ago or even earlier. In addition, 43 percent of the executives stated their companies now forecast that cloud-based services and products will dominate 81 - 100 percent of their revenues in five years. Eighty-two percent indicated that cloud offerings and strategies in the market today are enterprise ready or close to it. Interviews with 40 executives in Sand Hills 2010 Leaders in the Cloud research study (see Appendix B for an overview) uncovered compelling real-world evidence that the business value of cloud computing is tangible and the road to enterprise cloud adoption is shorter than our surveyed executives had anticipated. The implication? Companies must act now to take advantage of several cloud benefits in order to revolutionize their business. This white paper explores the top competitive advantages that the executives participating in Sand Hills 2011 Leaders in the Cloud survey are achieving from their early cloud-computing initiatives. To put this information into even sharper focus, the paper includes three case studies of companies that achieved significant return on investment, innovation, and scalability in the cloud.

Cloud Benefits 101: Whats in it for You?

Five Essential Areas Where Cloud Computing Helps Companies Avoid Competitive Mediocrity
Executives participating in Sand Hills 2011 Leaders in the Cloud survey are achieving competitive advantages from their early cloud-computing initiatives. The top five benefits they cited are as follows: Improved business agility Generated attractive return on investment Accelerated time to value Jump-started innovation programs Scaled the business rapidly

ADVANTAGE #1: Improve Business Agility

Business agility is the focus of many corporate mission statements today and thus, as Sand Hill expected, business agility was the No. 1 driver of cloud computing adoption for 49 percent of respondents in the Sand Hill survey (see Exhibit 1).
Exhibit 1:

Top drivers of cloud computing adoption

Business agility Cost efficiency
49%

46%

Leverage core competencies and free IT resources to focus on innovation Disaster recovery and business continuity Part of a green initiative Dont know 0
Source: Sand Hill Group Cloud Computing Survey 2010 13%

22%

3% 1%

20%

40%

60%

According to the respondents, business agility is all about accelerating and empowering their business and allowing them to compete betterand faster. In the cloud, companies can create, deploy, scale, and manage cloud-based applications much more quickly than traditional on-premise applications. This IT agility in turn contributed to overall business agility.

Cloud Benefits 101: Whats in it for You?

The surveyed executive of an electronics engineering company described the deployment of a major cloud-based financial application as taking seven weeks including four weeks of due diligence across their 14 offices around the world. He estimated that a traditional on-premise application would have taken more than a year to deploy. The Platform-as-a-Service (Paas) and highly configurable Software-as-aService (SaaS) aspects of cloud computing also enable companies to flexibly and quickly respond to changing business requirements.

ADVANTAGE #2: Generate an Attractive ROI

In todays challenging economic climate, it is not surprising that 46 percent of executives surveyed cited cost efficiency as the most important driver of cloud computing for their companies (see Exhibit 1). The good news is that many companies reported significant cost savings for cloud projects compared to their traditional alternatives; in fact, 91 percent of respondents reported cost savings overall, with 62 percent realizing savings greater than 10 percent. Some early adopters of cloud computing even reported five-fold savings in cost. Lets do the math. Looking at an apples-to-apples cost comparison between an on-premise solution and a SaaS solution over a five- to seven-year period, SaaS often proves to be 25 - 50 percent less expensivea data point validated by several of the interviewees. The ROI case is certainly compelling. Moreover, the cost benefits extend beyond the need for large up-front investments. SaaS costs are spread out more evenly over time, and the savings add up over the longer term. According to one CIO,

When we did a three-year ROI analysis, it came out to breakeven between cloud and on-premise solutions. At five years is when you see the value of cloud, because at three years you are typically doing hardware refreshes and software upgrades of on-premise solutions. CIO, high-tech company

CAsE sTuDy: Cost Advantages of the Cloud

A manufacturing company was very frustrated with the cost, complexity, and poor usability of its traditional on-premise applications. The company evaluated several on-premise applications and corresponding cloud equivalents for its HR, IT problem resolution, and CRM systems. The findings, which include the following factors, make a convincing argument for the multiple benefits of cloud applications: 25 percent lower investment than with traditional applications 70 percent fewer resources to administer/run the application versus traditional applications

Cloud Benefits 101: Whats in it for You?

 25 percent lower TCO (total cost of ownership) over a five- to sevenyear time frame compared to the on-premise application 40 percent cost and time savings with PaaS pilot project Impressive improvements in usability, simplicity, performance, and speed of implementation Security concerns addressed with totally encrypted database plus point-to-point security and access

ADVANTAGE #3: Accelerate Time to Value

In business, time is money. Decisions. Development. Deployment. Everything seems to happen faster in the cloudand thats good for business. Said one surveyed business owner of a small healthcare company:

The faster our business can innovate and iterate, the faster we will win in the marketplace. The business case is how long it takes us to create, deploy, scale, and manage an application today and how much faster, cheaper, and more efficiently we can deploy, scale, and manage in the cloud environment.
Ultimately, the all-important reason why cloud solutions will be costeffective is because of the return on investment: the ability to deliver value faster to the business. While the long-term TCO and ROI calculations underscore the bottom-line benefits of cloud solutions, executives who have experienced the power of the cloud say that the real business benefit is time to value. In the cloud world, companies simply subscribe to a cloud service and start using it immediately. If it doesnt work out, they move on without having lost a lot of time and money. The time to value for SaaS applications is a few weeksor less. In contrast, for an on-premise application, a company pays 60 - 90 percent in the first three years; it must pay for the license and the hardware in one lump sum, pay consultants over the first one or two years to configure and get it up and running, and hire an internal team.

The biggest driver for us in why we have 75 percent of our processes living out there in some type of cloud service today is that I can produce results for the organization much faster. CIO, manufacturing company

Consider these opportunities to save time and money in the cloud: Develop and deploy SaaS applications in a fraction of the time needed for traditional on-premise applications Acquire infrastructure-as-a-service (IaaS) computing resources instantly with a credit card, rather than the months-long process of

Cloud Benefits 101: Whats in it for You?

purchase requisitions, requests for proposals (RFPs), server installs, and testing associated with traditional on-premise options Write PaaS applications that take a fraction of the development time of traditional application development methods Increase speed of adoption and end-user satisfaction because of userfriendly GUIs and minimal training

ADVANTAGE #4: Jump-Start Innovation Programs

In addition to the capacity in the cloud for testing and experimentation with systems overall, the surveyed business executives described how the cloud enabled them to create sandboxes for internal and external developers to collaborate on new ideas and projects. In fact, 70 percent of the executives said their companies use cloud-based SaaS applications today (see Exhibit 2). They noted that the investment and time required to create collaborative forums with traditional application tools is often prohibitive.
Exhibit 2: Current

and projected adoption of cloud-based models

Currently In 3 Years
56%

80% 60% 40% 20% 0 Software as a Service

24% 18% 12% 70%

20%

Infrastructure as a Service

Platform as a Service

Source: Sand Hill Group Cloud Computing Survey 2010

Also, these leading cloud technology adopters shared their enthusiasm about cloud computing freeing up their budgets from previous domination by contractual maintenance spending. Moving such initiatives to the cloud allowed their companies to focus a majority of their time and money on innovative ways to use technology to drive business.

Ive seen skunk works aka innovation projects where smart developers figure out something interesting to do with the cloud over a weekend. They come in and show it to their boss, and their boss is blown away because the project took a tenth of the time and cost of what it would if done in a normal way. So it becomes the bosss religion and he will sponsor a bigger pilot and show the benefits to a decision maker higher up in the chain of command. The cloud brings together these pockets of innovation in the company. We need that. Chief architect, petroleum company
Cloud Benefits 101: Whats in it for You? 5

CAsE sTuDy: Innovation Sandbox

An e-commerce company wanted to build and prove out a lightweight development framework based on the companys core infrastructure for creating innovative new cloud applications. After evaluating a number of options, they built an internal cloud-based center for experimentationan innovation sandbox. Driven by the desire to innovate in radically different ways and to do so cost-effectively, the company put together a small team who applied the cloud innovation sandbox to create a radically new and easierto-use GUI in less than a month. The benefits were immediate and included: Provided vertical specialization without heavy investments Realized a turn-around time of weeks instead of months or quarters Gained the ability to experiment with radical user interface and interactive Java scripts

ADVANTAGE #5: Elasticity and Scale

One of the key promises of cloud computing is its limitless capacity. Like elastic that easily expands and contracts, companies using cloud computing can scale up very quickly when their business demands it and also rapidly scale down when the need is no longer present. The clouds ability to truly deliver on the promise of limitless scaleboth up and downand do it rapidly is one of its defining characteristics and sets this technology apart from anything in the past. The clouds elasticity and scale are key features that level the playing field for small and medium-sized enterprises (SMEs). These businesses can tap into the clouds pooled resources and networked applications to deliver the services to meet their business needs. The cloud thus presents a significant competitive advantage for many businesses that experience cyclical and/or unpredictable demand patterns. A good example is the retail industry where seasonal shopping spikes around various holidays can be unpredictable. The cloud enables these companies to dynamically obtain the IT resources needed to service their peak demand and then release those resources when the seasonal rush is over. Best of all, companies pay only for what they consume during a peak-use period.

CAsE sTuDy: Fluctuating Capacity Needs

A company annually conducted a month-long charitable-giving campaign. Two years ago, it created an auction tool to sell off physical goods (shoes, clothes, toys, furniture, etc.) and donate the proceeds to charity. This tool is a typical three-tier Web application with a Web server, app server, and

Cloud Benefits 101: Whats in it for You?

a database. The resources demanded by the application began to increase during the auction month as the bidding deadline neared. Then the loads would spike dramatically at the end of the month as donors scrambled to bid before the auction closed. For several years, the company dealt with significant slowdown of the system towards the end of the auction month when usage was highest. Because users were unable to use the system, the company lost the opportunity to substantially increase the auction contributions each year. They always underestimated the resources this application would consume and found it difficult to predict accurately how popular the auction would be. IT had to provision for the end of the month all the hardware, storage, and networking that would be needed in advance of the peak load (which was often incorrectly forecasted). The result was an overly expensive project, which pushed the company to look for alternative solutions. They soon realized the solution to their issues was in the cloud. And after just two weeks, they rewrote the auction application to run on cloud infrastructure. They ran it during the month-long campaign and closely monitored resource usage. During the last several days, the team ramped up capacity and continued to monitor usage. They projected how popular the auction would be and expanded capacity accordingly to accommodate the expected load. They then continued to dynamically fine-tune resources based on real consumption and demand. The benefits to this company of the cloud-based auction solution were tangible and compelling: No system slowdown at the end of the month Contributions raised were twice as much as in previous years because the cloud infrastructure alleviated their previously limited computing resources Nearly 50 percent in resource savings; even in the development phase, development and testing resources were only consumed on demand rather than sitting idle most of the time Cost savings across the entire project life cycle This flexible cloud solution gave the company the scale it needed to service peak auction demand with almost instantaneous scalability. Thus, they enjoyed great flexibility, agility, and speed while saving costs at the same time.

Conclusion: Sustainable Leadership and Competitive Advantage in the Cloud

Software industry analysts often compare todays advent of the cloud to that of the Internet in the late 1990s. The companies that were early in embracing the Internets cost-effective and interactive capabilities in marketing,

Cloud Benefits 101: Whats in it for You?

commerce, and communication in the 1990s continue today to be leaders in their field. Similarly, as evidenced in the three case studies cited above, cloud leaders report their early cloud initiatives are producing business benefits that will keep their companies ahead of their competitors. Sand Hills survey found that many executives are already seizing this opportunity: 40 percent of these companies business and technology teams are already working to drive their companys successful move to the cloud. As the cloud technology wave hits, you, too, have a clear opportunity to lead your company into the cloud era and realize business benefits as well as the competitive advantage of being a leading-edge cloud user. Sand Hill recommends that companies take critical immediate steps to ensure a successful transition to cloud solutions, as follows: 1. mbrace change The cloud represents a once-in-a-decade opE portunity for business executives to reinvent their organizations. For small businesses, the economic benefits of consuming externally hosted resources and services are too compelling to ignore. Case studies (Appendix B - Sand Hill research data) of small companies show many with more than 80 percent of their serviceseven mission-critical servicesalready hosted in the cloud. Unfortunately, not embracing the cloud will cause long-term harm as other companies already using the cloud are strategically better positioned for a competitive advantage. 2. ake a business decision (not an IT decision) The business M value of the cloud is impressive. Evaluate the many benefits and total cost of ownership of cloud solutions and compare them with traditional alternatives. Early adopters have found impressive cost and agility benefits in embracing todays cloud solutions. 3. hink: cloud = outsourcing External clouds are simply Version T 2.0 of the global trend to outsource functionality in order to realize business value. Therefore, it is critical that companies evaluate their choice of a cloud vendor in the same way that they evaluate and select an outsourcing partner. Ensure that functionality and security requirements are met; review cost benefits, risks, SLAs and contracts; and choose trustworthy vendors with a good track record and the ability to survive for the longer term.

Cloud Benefits 101: Whats in it for You?

APPENDIX A
Overview of Sand Hill 2011 Cloud Survey
During January-February 2011, Sand Hill Group conducted a research study to gauge software vendors cloud outlook for the coming year and beyond. The study utilized an online survey to gather executives impressions on the direction of the cloud market, their cloud strategies, and customer readiness for adoption. A total of 100 software CEOs and senior executives responded to the 24-question survey and provided insight about their cloud revenues today and next year, customer attitudes and readiness, and which products and services are gaining traction. Thirty-two percent of the respondents identified themselves with titles of CEO/Presidents, and another 32 percent identified as Vice Presidents of sales/marketing/services. The study also identified the long-term trends including which layers of the cloud stack will take hold in the next three to five years. In addition, researchers conducted in-depth telephone interviews with some executives to gain more insight. Participants in the initial survey as well as the followup interviews were guaranteed that their identities would remain confidential in order to protect the strategic nature of the corporate information provided. A broad cross-section of software companies participated in the survey. Nearly three-quarters of the respondents were from product companies. The executives represented primarily midsize and small companies. Thirtyseven percent were from companies with less than $10 million in revenues, and 28 percent have revenue of at least $10 million but less than $250 million. About 18 percent of the respondents were companies with greater than $1 billion in revenues. The findings of this study are intended to give software companies directional insight as they make business decisions. Although efforts were taken to survey a wide variety of software companies, the study is not necessarily a representative sample of U.S. software companies.

Beyond the Hot Air: Whats really in those Clouds?

APPENDIX B
Overview of Sand Hill 2010 Cloud Research Study
In 2010, Sand Hill Group released a landmark research study identifying the business value realized by companies deploying cloud-computing initiatives today. A two-phase interview study design uncovered both the in-depth insight of specific customers and vendor experiences, and a quantitative market survey provided a snapshot of cloud initiatives and priorities at a variety of companies. The interviews and survey questioned respondents about their current cloud initiatives, current and planned use of specific cloud models, business benefits, organizational and technical challenges, and details of specific use cases.

In-depth Interviews
In order to gain an understanding of the cloud experience at a variety of types of companies, Sand Hill conducted a total of 40 one-hour, in-depth interviews. Twenty-two interviews involved CIOs, VPs of IT, systems architects, and technology directors at small, midsize, and large companies. This group of executives represented a variety of industries, including insurance and finance, energy, telecom, manufacturing, healthcare, media, and technology. To gain insight from leading software vendors, Sand Hill conducted eight interviews with executive-level individuals who were responsible for cloud strategy and products within their organizations. Again, a mixture of representatives from large and small software companies was included.

Quantitative Survey
As part of the study, Sand Hill Group conducted two Web-based quantitative surveys in collaboration with McKinsey & Co. and Tech-Web. These surveys received a total of 511 qualified responses. Most respondents were CEOs, CIOs, or other senior IT executives at their companies, which ranged in size from small businesses to global corporations. The combination of qualitative interviews and quantitative surveys present first-hand accounts on the current state of cloud computing initiatives from an impressive cross-section of enterprises. However, the results may not be reliably projectable across the universe of American businesses. Therefore, the findings and implications in this report are intended to provide directional guidance during product development.

Cloud Benefits 101: Whats in it for You?

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About Sand Hill Group

Sand Hill Group (http://www.sandhill.com) provides strategic management, investment and marketing services to emerging market leaders. Sand Hill Group is best known for its work in the $600-billion software and services market. As founder of the Enterprise and Software conference series, Sand Hill Group has been credited with uniting the software business ecosystem of executives, entrepreneurs, investors and professionals. The firm is also the publisher of SandHill.com, the premier online destination for strategic information on the software business. The site and its newsletters are read by thousands of top software industry executives every week. Sand Hill Group also funds primary research into key technology and business model trends that impact the software business.

Copyright 2011 Sand Hill Group

The information contained herein has been obtained from sources believed to be reliable. Sand Hill Group disclaims all warranties as to the accuracy, completeness or adequacy of such information. The Sand Hill Group shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. Reproduction of this report in print or electronic form is strictly prohibited without written permission from Sand Hill Group.

Cloud Benefits 101: Whats in it for You?

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