One of my heroes in the cloud world is Joe Weinman, the father of cloud economics. Weinman wrote the book about the economic impacts of cloud computing (actually he really did, Weinman’s “Cloudonomics” book is due out in the next few months) and has done much to extend thinking beyond the simplistic “oh, but cloud saves us money, right?” approach of most.
The elephant in the room exists thanks to some traits identified by the 19th Century British economist William Stanley Jevons. Jevons had the exciting-sounding task of investigating coal use across the British empire and was fascinated that regions with coal machines that were of higher efficiency than normal did not seem to have a corresponding reduction in coal consumption. Many sleepless night later and the world as introduced to Jevons’ Paradox, the concept that increasing the efficiency of a resource-using system obviously reduces the total resource consumption by that machine. However this reduction in consumption leads to reduced cost thus resulting in a system that is suddenly economically viable for a whole new set of uses. What that meant in the case of the British Empire was that total consumption of coal went up, but the number of productive applications being powered by that coal went up as well – increased efficiency led to decreased cost but, ultimately, increased consumption.
Arguably that’s not a particularly good thing in the case of coal (coal is, after all, a finite resource, the consumption of which has some deleterious impacts on the environment). When we apply Jevons’ Paradox to cloud computing however, something different occurs: a move to cloud computing reduces the per-unit cost of computation. This reduction in per-unit cost results in a new playing field being set; one where projects that were formerly outside the realms of financial viability because of negative cost/benefit ratios suddenly become viable – magic almost!
Recently GigaOm covered Jevons’ Paradox as it relates to cloud computing and came up with the aspirational prediction that, while Jevons’ Paradox applies to cloud computing, organizations will be happy to pay more. In the post, the author explained that;
…when it comes to the cloud, we will likely continue to spend more each year on IT. However, with spending shifting into cloud computing as opposed to traditional forms of IT, this rise will be accompanied by a correspondingly greater increase in economic benefit. This is an important point: Jevons’ Paradox has two forces at work. The increase in consumption results from increased application of the technology to new problems, and this only happens if those new applications are economically viable. And “economically viable” is code for “makes you money.”
Of course the gotcha to all of this is that it assumes that IT and businesses more generally think, and work, rationally. It assumes that business demands for continuing reduced spend will reverse once cloud computing is implemented and delivering benefits. It assumes that organizations will actually have the ability to transparently see the increasing outcomes that a move to the cloud is delivering. And that’s something that is in no way a given, especially considering the buying decisions that seem to be continually occurring around cloud.
It’s something I battle every day within organizations that I advise, and something that most of us in the space are loathe to discuss. While we all spend an inordinate amount of time talking about increased agility, ability to focus on core business and the ability to closely tie expenditure to revenue, the conversation, at least in my experience, always comes around to cost. It seems innovation and agility are aspirational goals within an organization, but cost savings are a non-negotiable requirement.
I’m not suggesting for a minute that organizations should throw financial prudence out the window, however I do worry that an over-emphasis on the cost-reduction side of the equation will reduce the chances of Jevons’ Paradox to do for cloud what it did for coal. And by denying themselves the opportunity to enjoy Jevons’ Paradox, organizations do themselves a long term business disservice.
(Cross-posted @ The Diversity Blog - SaaS, Cloud & Business Strategy)