What’s your reaction when you learn that a company keeps a fleet of private jets? Does it suggest that the company is generally frugal and prudent with shareholder money? Or does it raise concerns that perhaps the company is spending in ways that wouldn’t withstand closer scrutiny? Given the tremendous expenses involved, objective financial analysis usually recommends against it, instead using commercial air travel services, maybe with upgrades in certain exceptional circumstances.
Similar concerns should arise when you learn that a company keeps private data centers. Objective financial analysis of owning and operating such complicated systems increasingly shows that other choices make more sense. That’s because of the growing availability of so many attractive commercial information technology services, ranging from software-as-a-service to public cloud infrastructure.
This reality has particularly struck home with mid-sized companies, such as regional law firms or wholesale distributors. With only a few dozen employees, why should any of them spend time maintaining and operating servers and other equipment? Would they hire aircraft mechanics and pilots just because they travel? Besides the expense burden, such employees would also face challenges maintaining their skills at top levels in an organization for which that’s not the primary mission. Instead, perceptive IT professionals in mid-sized companies focus mostly on the business applications used by their customers and colleagues, because that’s where real value and competitive advantage are gained.
Larger enterprises are sometimes slower to recognize this new reality. For companies worth billions of dollars, their scale can dwarf the millions spent on equipment in data centers, just like planes in hangars. But reasons given for the status quo often don’t withstand closer scrutiny.
For instance, some cite security concerns, and at first that seems to make sense. Wouldn’t private data be safer in private data centers? Yet few breaches come through physical access to computers. Today most applications are globally accessible, since their purpose is connecting a business with its customers and suppliers. Thus, they must be secured from the most likely direction of attack, via the internet. That’s true whether the application runs in a private data center or public cloud. And while certifications like HIPPA and PCI were once more difficult to achieve with implementations in a public cloud rather than a private data center, such standards have evolved to include both approaches and are seldom blocking concerns any more.
Air travel can raise comparable safety concerns. Of course, public air carriers are not infallible, but they maintain their fleets and train their operators to industry best practices, driven by ethics, reputation, and regulations. Their continuous efforts have delivered a system yielding astonishing levels of safety. There’s no rationale to believe private travel is safer. (In fact, some data suggests that private jets might pose slightly more risk, though still miniscule.) Driven by comparable motivations, public cloud providers are already providing remarkably reliable and secure infrastructure, with ongoing improvements across the industry.
Another reason to prefer a private solution might be flexibility. Private jets can offer routes and schedules, particularly to rural destinations, unmatched by commercial carriers. Maybe an executive’s time is so valuable that the expense is worth it. But what customization does an enterprise require that is unavailable as a service? Right now, Amazon offers over 50 choices for compute instances alone, optimized for compute, memory, or storage. They and other cloud providers offer additional products every week, ranging from networking to databases, analytics to IoT support. What private enterprise can afford to keep pace?
Finally, some might argue private data centers reduce cost, and certainly the monthly line item for cloud expenses, just like travel expenses, will attract sensible management attention. But generally, the appropriate response is reviewing and adjusting usage. For instance, reserved compute instances are comparable to early travel reservations, almost always a more economical decision than buying a plane.
Airlines and public clouds both enjoy the economic advantages of scale. Capital expenditures are more efficient because pooled assets like planes and servers can be in near-constant use. Operational expenditures are more efficient because consumables like jet fuel and electricity can be purchased at wholesale rates. And the most valuable resource of all, human experts, can work where their skills are honed constantly as central to the organization’s mission.
When Warren Buffett purchased a private jet in 1989, he named it the “The Indefensible,” because of how often he’d observed such expenses as a symptom of corporate excess. Though his position shifted once Berkshire Hathaway acquired NetJets, that company still provides a shared service, even if it’s a step up from Southwest. Perhaps private data centers will someday become equally indefensible. Meanwhile Buffett has spoken repeatedly about investing in cloud computing. Expect the same decision from more and more astute business people.
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