Cloudonomics: The Business Value of Cloud Computing, + Website

Risk Reduction

The term “risk” has a variety of definitions and connotations that seem to fall into two general categories. In one, it is a measure of the variability or dispersion of outcomes: There is a low risk that the sun will not rise tomorrow; the risk associated with an investment in the tech sector is higher than that in a utility. In another, it is a measure of the likelihood of undesirable outcomes: Playing Russian roulette is risky.

In either case, the cloud can reduce risk in a number of ways. At the infrastructure level, the risk of financial loss due to excess capacity is reduced, since you need to pay only for capacity that is used. An even bigger risk is the risk of financial loss due to insufficient capacity.

Today’s businesses are either IT-native businesses—think Google—or have a strong IT component. An example of the latter might be FedEx or UPS: Their core business is package delivery, but tracking and optimizing logistics, whether it is determining optimal routes or how best to pack trucks, is essential to their competitiveness, their customer value proposition, and their margins.

At the platform and software services layers, a different type of risk reduction comes into play: It is the difference between being the test pilot on an experimental rocket that you designed and built yourself versus being a passenger on a commercial jet. Enterprise customers are often faced with the choice of building a new software product versus leveraging existing components ...