The Backwards Economics of IT Investment

Success used to mean ownership. If you owned a house, a car, a watch, and a good suit or two you had it made. But if you ask the younger generation what success looks like, they will tell you it’s about renting, using Uber or Lyft rather than owning a car, paying off a new phone every two or three years at most; it’s about being able to pick up and move without attachments or possessions.

The same principle is at work in the world of IT investments. Microsoft Office was sold as a permanent license for decades, but now, Office 365 is more typically rented, and software is delivered via cloud. While on-premise hardware sales continues to stagnate, cloud-based deployments are growing at 29% CAGR [Link to “Cloud Services Hit $117B and Maintains 29% Growth”] (Compound Annual Growth Rate). More than 50% of businesses say almost all their applications are cloud-based now, and pundits expect that three-quarters of business applications will be hosted in the cloud by 2021.

Is it possible that we are heading in the wrong direction? Not likely.

In the cloud economy, renting hosted software, and even infrastructure, is more efficient than owning. It costs a centralized location much less to upkeep software, infrastructure, architecture, and platforms than it would for those assets to be divided among businesses and consumers to maintain individually. The sheer cost of IT personnel would break the bank in an on-premise model all by itself. To reach strategic goals with IT, it makes more economic sense to rent, rather than own.

The same is true of human resources. Businesses are deploying more IT-based tools to their workforce than ever before. From Customer Relationship Management (CRM) to Voice-over-Internet-Protocol, to Quickbooks, the volume of business tools has grown exponentially. Small business IT personnel are overwhelmed by the support requirements of these softwares. Rather than employ support staff in-house, it makes sense that Managed Service Providers (like Platte River Networks) are growing by 11% per year (Research and Markets, 2018). Businesses are shifting from a wholly in-house IT staffing model to incorporate more MSPs into their vendor profile.

However, IT is not the only department impacted by this shift. Equally, applications and professional services businesses are performing tasks across business support functions. The value these companies offer has increased dramatically. Leveraging these will allow businesses to stay leaner and focused on strategic goals.

From Assets to Strategic Goals: How should the economics of renting impact your growth mindset?

The question is not whether to rent; it is what. Your in-house IT staff will not be able to handle everything, but they will become even more vital. As deprioritized support functions are taken off their plates, they will be able to make priority decisions and manage/develop IT assets that inject value directly to the business’ core value proposition. The head IT role will shift from support to strategic.

The pathway to this new growth mindset begins by transitioning from an asset-based to a rent-based model. Low-strategic capabilities should be moved first. Outsource low-strategic but high-priority items to managed service providers, such as cybersecurity and help desk. Leverage public cloud for low priority capabilities. Non-strategic accounting and human resources are also fruitful starting points. Test the waters here; free up time, and look to replace legacy IT assets for increased performance and profitability.

Platte River Networks has watched the cloud, and businesses evolve. Since 2002, we have helped Denver businesses leverage IT to drive profitability and business growth. If you have any questions about your transition to the cloud, please give us a call. We would be happy to help.