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How Does Cloud Computing Impact Capital Strategy?

May 9, 2018
by Josh Anderson

CHICAGO, IL — The Cloud is here to stay, but that doesn’t mean that every workload is destined for migration – nor should they be. So at CAPRE’s Chicago Data Center Summit last week, we convened a panel called The End-User Approach to On-Prem, Hybrid, the Cloud, and Tomorrow’s Compute Needs and Initiatives where we invited our panelists to discuss the economics and capabilities of the Cloud. This rousing discussion touched on many broad points, but concluded with a focus on the economic side of things.

data center summit“There seems to be quite a bit of talk about capital and operating expenses, as people move back and forth between having on-premise or SaaS models, or colocation and Cloud,” piqued Mike Krelitz, Sales Director, Central Region & Managing Director, Midwest Region at Winthrop Resources Corp, and moderator of the panel. “I wonder if some of you could share what that means to you. What challenges do you have as a result of trying to find the right capital for executing on your strategies?

“We are seeing pretty regularly now, a move and a large shift away from large capital investment,” replied Thomas McKinney, CFM and Director for Data Center Development at FORSYTHE. “And even owning a data center or corporate facility of any kind, the assets don’t really have a lot of value any longer. There’s a lot of cost directly associated with operating those. But it’s the large swings and the spikes in capital that are very difficult for organizations to handle.”

According to McKinney, these clients really want to move into an operating model that’s steady. “And maybe moved up a little bit, but then you get to the end of your budget cycle. And you say, well, my spend has been X this year, this is where we’re going to be at next year. We’re not managing data centers, we’re not managing buildings. We’re managing our core business. I think that’s the big change,” he continued.

And there doesn’t seem to be as much of a concern about what the support of data costs, he shared. “I think that it’s probably a little more expensive, from what I’ve seen, if you go into colocation or if it’s hosted,” explained McKinney. “But if you think about what you’re taking back, you have a host of personnel who are not doing the services. You have a lot of equipment that you’re not replacing on 5, 10, 12, 15 year cycles, or whatever it happens to be. But it seems that that regular tick – that metered tick – for organizations tends to be where the CEO, CFO, or CIO want to go. So I always remind my guys in consulting that the C in CEO, CFO, and CIO, stands for cash. And that’s where they operate. We see that pretty much across all of the verticals that we work in now.”

Next, Raymond Parpart, Director for Data Center Strategy & Operations at the University of Chicago chimed in. “I think our approach is don’t spend any money,” he joked, before becoming more sincere. “Universities, like corporations, are expected to have deep pockets. And they don’t. We have the same financial struggles that everyone else does – just read the paper. Ours are in front of everyone else. Interestingly enough, we are looking at OpEx vs CapEx, and we’re trying to reduce OpEx. So I can get CapEx, where I can’t get OpEx.”

In other words, Parpart doesn’t think there’s any one right answer — it depends on your situation. “One of the things we looked at, is how we have one system that’s so large, if I put it in the Cloud, I’d buy it every 12 months,” he revealed. “So we own it. But that’s also a grant. So the other thing we deal with is that we get more capital than we do OpEx, because we get grants. A grant is usually a three-year bucket of money. And in that three-year bucket of money, I can buy a lot of stuff, and I can operate it. Then all I have to figure out is, in years four and five, how do I continue to operate it? And so we kind of look at, how do I reduce my OpEx and leverage CapEx where possible?”

For more on The End-User Approach to On-Prem, Hybrid, the Cloud, and Tomorrow’s Compute Needs and Initiatives, check out previous CapRE Insider Report covering this panel:

Banner Photo (L-R): Raymond Parpart, Director of Data Center Strategy & Operations, University of Chicago and Thomas McKinney, CFM, Director, Data Center Development, FORSYTHE

 

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