WashPost CIO: Pricing the Cloud

Yuvi Kochar is stuck between a cloud and a hard place. On the one hand, the CTO and VP of technology for The Washington Post Co. sees enough immaturity in cloud computing to characterize it as unfit for large companies. On the other hand, he’s an enthusiastic proponent of the cloud who’s eager to tap it wherever it makes sense.

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Kochar says the ability of cloud computing to deliver on its promise in the enterprise pretty much hinges on the establishment of a pricing model that leaves the old license/maintenance paradigm of packaged software in the dust. And, quite frankly, that hasn’t happened yet.

Quite the opposite, in fact. Kochar says the big IT vendors have continued to apply that legacy pricing approach to their cloud offerings, and that asking for five-year commitments or charging for software-as-a-service offerings based on user seats misses the greatest potential of the cloud.

“Enterprise software vendors haven’t built a model that’s as flexible as cloud computing itself,” Kochar says. “We need to look back and try to compare this with the electric utility. You pay by the kilowatt hour, not by the size of the wire coming to your house. Cloud computing has to find metrics that correctly align the service being acquired with the value being derived by the business.”

On this topic, Kochar is trying to force vendors’ hands. So when the Post’s contract with Kenexa’s BrassRing, a Web-based recruitment-automation application, was expiring, he focused on negotiating a renewal that would tie pricing to the company’s number of employees.

In doing so, he’s ensuring that if the company’s employee head count were to shrink, so too would the cost of its recruitment software. (By way of full disclosure, Kochar was at one time the CTO at BrassRing, prior to its acquisition by Kenexa.)

Kochar plans to use the same tactic when it comes time to negotiate new deals for cloud services the Post Co. uses, and he recommends that other IT executives do the same.

A homebuilder, he says, should negotiate a subscription to a cloud CRM service based on the number of homes being sold, while a telecommunications company outsourcing its service management to a cloud provider might want to tie the deal to its revenue.

To date, very few cloud computing deals have been structured this way, but Kochar doesn’t think he’s asking for too much.

“I’m not looking for these guys to fund my business,” Kochar says. “But I want to make sure that we’re building something that aligns their incentives and my costs to the right thing.”

Despite the slow maturing of cloud providers’ business models, Kochar has been anything but shy about using their services. During his seven years at the Post Co., he’s spearheaded subscriptions to cloud services that support everything from performance management and e-learning to compliance and travel management, and it’s worked out rather well.

Today, his shared services organization, which supplies HR services to nearly 40,000 employees, consists of just seven business analysts and three project managers–no systems or database administrators, a fact he attributes to the impact of the numerous cloud services. (Kochar also runs the corporate IT group, with all business units managing their own IT.)

But don’t take his gung-ho commitment to the cloud as an all-encompassing stamp of approval.

“I’m working with the metrics available in the market today,” Kochar says. “I’m not exceptionally pleased with it, but I still see the value and flexibility cloud computing delivers.”