Money

Companies large and small are decommissioning information technology infrastructure as they move to cloud computing.

That’s not news. Cloud and as-a-service offerings have been discussed for years. They are the new normal.

Cloud is often cheaper and more efficient than owning and maintaining infrastructure. This is especially true where technology isn’t strategic.

Yet it isn’t always clear which approach has the lowest total cost of ownership because IT TCOs are hard to measure. Few businesses can tell you how much specific self-hosted applications cost to run.

Cloud costs are easier to gauge – you get a bill each month. There is nothing to depreciate.

No depreciation

Few understand the financial and strategic implications of not having large IT investments on balance sheets. Tax laws mean companies depreciate installed systems over several years. Traditional technology is capital expenditure.

Cloud subscriptions are service payments. You can write them off as operating costs.

A switch to the cloud frees capital for investment elsewhere. It also changes how people, especially at the top of businesses, think about technology. The implications of this aren’t yet fully clear, but most likely companies will become more nimble in their thinking.

There will be less sunk cost thinking – that’s where people argue “we’ve paid for this stuff we need to get a return on what we spent” – and more “what technology makes the best sense now” thinking.

This will give business owners more agility – they can better respond to changing conditions. This works just as well when expanding a business as when cutting costs.

Which could mean turbulence. That’s not always a bad thing, change means opportunity, but it can also mean greater business uncertainty and more risk-taking.

One thought on “When technology no longer depreciates

  1. Cloud computing is outsourcing. It isn’t magical and always up-to-date with technology etc. Now instead of doing internal upgrades you have to convince a third party to do it for you (depending on your needs and what plan you have). If server providers aren’t up to par you have no choice but to go along with them. I’ve found in NZ customer service and support is so subpar most of our development time for websites is spent hassling third parties to do simple tasks we really should be able to do ourselves (e.g. changing one line of text in a file).

    How it affects the budget due to depreciation is interesting. I wonder how much they’ed actually change. I guess for most businesses they barely have any infrastructure to move, but bigger international companies would have enough infrastructure to create their own cloud provider for themselves.

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