The Economics of Cloud Integration

I met up with an integration partner the other day and we talked about how cloud could impact their business. He talked about the typical integration project and that it was quite an investment for the customer.

• Phase 1: Partner builds out integration solution
• Phase 2: Initiates technical training for customer IT staff
• Phase 3: Handover management of integration solution
• Phase 4: Work on joint second wave project
• Phase 5: Full handover to customer.

In talking about cloud he suggested that it wouldn’t make sense when dealing with a simple EAI scenario of integrating two in-house systems. Why would you consider going outside the firewall to achieve this integration? The partner thought not, but I’m not so sure and suggested that if I offered to run the service for say a few £100 a month with strong guarantees I think the customer would have to think about it seriously. This is after all what the AppFabric in Azure is all about! At the time my mind was simply focused on the operational savings, but in going back to the phased delivery model above, there were also skilling and software licensing costs that needed to be factored into the equation.

So let’s imagine the cost of this simple EAI project from a traditional integration project and a cloud service perspective.

Traditional integration		Cloud Service
Initial Development Project	£45,000	Initial Development Project (50% up front remainder deferred over 5 years)	£22,500
Training (x 3 people)	£15,000		£0
Assisted Development Project	£25,000	50% up front with remained deferred over 5 years	£12,500
Software costs	£25,000		£0
Support & Maintenance/year (10%)	£7,000	Development cost recovery (divided 5 years) Support & Maintenance/year (10%) Hosting support (10%)	£7,000 + £7,000 + £7,000
Internal operations expenditure (FTE @ 50%)	£30,000		£0
Total Cost over 5 years	£320,000		£140,000

In this scenario the customer saves around 60% costs over 5 years – why wouldn’t the customer be interested? Also, the partner earns an additional £35k over the 5 years too, plus they still retain a close relationship and ongoing revenue.

Ok, so the model is overly simplified and probably missing a 1,001 things but offers an indication of a more balanced economic and innovation based model that aligns much better to the customer’s needs than the old model of software delivery and maintenance. Besides the obvious savings what is far more powerful is the effect this has on cashflow over time …

Not only are the initial cost reduced and spread over the 5 years, but so too are the ongoing maintenance/management costs.