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Cloud Computing and Tech Spending

By: | Tags: , , , , , , , , , , | Comments: 0 | February 18th, 2016

This week the Wall Street Journal (WSJ) published an article that was full of good news for most, but concern for others; and this, in our opinion, is just the beginning of the technological shift we are all witnessing. The article was entitled “Cloud Computing May Be Hampering Tech Spending: Analyst Report” . As a long-time proponent of technology; for instance, cloud SaaS models (Software as a Service) for electronic medical records and most other computer-centric services; this got our attention fast.

The article discussed what seems to be a strike occurring among corporations in capital spending –

“Hesitance among chief information officers to commit to long-term hardware and software purchases may reflect the gradual shift from corporate data centers to so-called public cloud offerings from companies such as Inc. and Microsoft Corp.,” Deustche Bank analyst Karl Keirstead wrote in a research report. 

We have not seen the report, but we get it. Since 2015, as a provider of a SaaS platform and a small business, we have totally migrated to the cloud. We decided in 2013 to scuttle our office servers and our co-location servers, when they reached their functional obsolescence and move to Azure, the Microsoft Cloud. We have always had our PWeR ®platform on the Amazon Web Services (AWS) cloud. We replaced maybe $100,000 or more of original cost servers with many virtual servers with the requisite assurances that we would always be up, always have access to the best software and our corporate records from anywhere. It would also be protected, secure and backed-up.

We can see that blade server providers missed some big sales. Although we have a higher monthly cost, we also have lower capital investment; furthermore, the labor to maintain the system is now the responsibility of the cloud provider. We will pay Azure and AWS forever, because for a slightly higher dollar amount, we are instantly scalable and able to manage a much larger enterprise footprint, with less people.

At the end of the day our capital costs far less, there are fewer accounting issues, no tangible tax issues and no depreciation. We chose two platforms for a variety of reasons. The Azure for the software to operate the business and AWS for the flexibility that we think only AWS can provide; at least so far. Our lives have been made much easier.

As we have been discussing for the last few weeks, directly and indirectly, digitization and innovation is affecting productivity and cost with few industries standing to benefit more than healthcare. A very small fraction of healthcare computer processing power, as an industry, is in the cloud. Our industry craves data and control; many think that in the cloud they lose control.

Most Executives don’t know how their own servers integrate into their business, not to mention offsite server farms or co-location facilities. They are forced to be hostage to a large, and expensive staff of professionals that know what they are doing to keep things running smoothly. The reality is that their company will likely be better off, both fiscally and labor-wise, if the actual “physical resources” are hosted by the biggest and best, the Azure and AWS of the world.

A full-cost accounting model will prove the cost savings are material and are likely to come down. Some big companies like IBM seem to be playing catch up to Azure and AWS. Google is investing mega-dollars to become a big player in the space and reportedly 3rd in the race with AWS and Azure. I recall the headlines when Amazon broke out the size and profit margin on their AWS business, it surprised everyone .

“According to the numbers, AWS generated revenue of $1.57 billion in Q1, up from $1.1 billion for the same quarter of 2014. Profit for the division came in at $265 million for the first quarter, assisting Amazon in offsetting losses in other divisions.”

It has recently been reported that some hospitals are now moving their health information systems to the cloud, but by last count, the number was still quite small. I suspect that a decade from now, maybe as much as half of all hospitals in the US could move all, or materially all, of their IT to the cloud.

Servers have a shelf-life, a planned obsolescence, and are expensive to service, upgrade and eventually replace. With bundled services, you get the storage, redundancy and longevity by moving to the cloud. We expect the leap-frog will be huge in developing countries, allowing them to go from paper medical records, directly to the cloud, bypassing material equipment and personnel cost.

There is little reason for a small, or even mid-size, medical operation to have servers; server rooms or racks in their offices. The cost and benefit is not even close. They can have terminals and routers that connect to the cloud, along with all their records, and it will be both cost effective and more secure. No exposure to the environment, damage or theft, and with encryption technology, their connection and storage is generally 100% HIPAA compliant. Moving to the cloud just makes sense.

– Noel J. Guillama, President

AWS Highly Profitable

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