Brain cloud

In a comment on an earlier entry, a reader who wishes to be known only as Alec referred to the "knowledge concentration" that a third-party provider brings. He was talking about the ASP model, but acknowledges this holds for cloud providers as well.

This knowledge concentration means that deployment "requires about 10% less effort than a customer-hosted one of the same size and complexity," according to Alec, whose statement also suggests this might hold for incident management.

But I think there's even more to it than that.

If your labor is 10% more efficient, then that's time that they can be spending on value-add projects rather than keeping the lights on. Most business cases I've seen would grant that this is a 10% savings, but that would only be true if your cloud provider's cost per person-hour were the same as your badged employees'. But you're not fishing from the same pool. If your data center is in a rural or semi-rural area where skilled workers are hard to find, then you're paying a premium for them. If you're in a major metro, you're paying a premium just on the burden rate -- and then you can consider higher salaries. But cloud infrastructure is in places with affordable labor markets where there's a concentration of IT skills. So that adds to the bargain.

And we're not just talking about the tape monkeys and board jockeys here. The higher up you go up the skills ladder, the better the payoff is likely to be. Unix admins? LAN admins? Hypervisor gurus?

Also, if your cloud's team is 10% more efficient than your home-grown team, that means that your systems are back up and running 10% faster. What's that worth in terms of productivity? Customer satisfaction? Revenue? (By the way, don't count revenue in a business case. It's misleading as all get-out. But I think it's fair to include EBIT or EBITDA, depending on whether you're presenting a cash- or accrual-basis case, respectively.)

One last point about cloud labor costs versus in-house: Growth. What are you projecting for wage inflation next year -- 3%? 3.5%? Whatever it is, it's just a projection. You really don't know. You'd be remiss not to add a risk factor to that. Depending on the size of your shop, three or four longstanding employees who know where all the bodies are buried could blow that estimate straight out of the water.

And then what are you paying them to do? You're paying them to deliver an adequate standard of service. Adequacy is defined by a service level agreement between you and ... uh ... you. There's no real penalty for violating it, except that you get an earful from the end users.

But with a cloud provider, you have a contract. You know exactly how much it'll cost next year to maintain a specific service level. If that SLA is violated, you get an agreed-to rebate. Otherwise, you know what you're paying and know what you're getting.