So you’re sold on the advantages of cloud services—the flexibility, agility and “always on” business models they enable. But what’s the return on investment of cloud services?

The fact is, calculating cloud computing ROI is challenging. The abstract nature of the cloud doesn’t lend itself to a simple matter of addition or subtraction. It’s not like the business case for virtualization, where you simply add up all the servers you didn’t have to buy, operate and maintain.

On the investment side of the ledger, there are costs associated with moving to the cloud, especially if you decide to build your own. The good news is that you can mitigate these costs by using open source technologies like OpenStack and KVM (kernel-based virtual machine) to eliminate the expense of software licenses. Or you can dramatically reduce up-front costs by going with a subscription cloud model, paying as you go.

Adding Up the Returns

So what are the potential returns from moving to the cloud (or the potential cloud computing ROI)?

For starters, productivity in the cloud is tremendous. It’s much easier and faster to build and deploy apps in the cloud. Deploying more apps in less time means you can either clear your development backlog faster or reduce your overall development costs.

The cloud also improves automation, leading to even greater density of your virtualized environment. The current global density of server virtualization is around 9x or 10x. The additional automation delivered by cloud services could take that density to 12x or 13x or even more. For larger environments, the financial impact of this could be significant.

The advantages go beyond computing. The next big cloud opportunities are in networking and storage—two areas dominated by systems built on proprietary hardware. Technologies like software-defined networking (SDN) and network function virtualization (NFV) let you run enterprise-class (and telco-grade) workloads on low-cost commodity hardware. That is a real game changer. While SDN and NFV are not, strictly speaking, “cloud” technologies, they are often employed as part of a cloud migration strategy—leading to some compelling financial benefits.

The Value of Competitive Advantage

But reducing costs is just part of the equation. Perhaps the greatest potential return lies in what the cloud enables your business to do that it couldn’t do before.

The cloud’s agility and productivity allows you to respond faster to market opportunities. You can create new services and business models and extend your reach to attract and retain customers more effectively—and more cost-effectively, because of the cloud’s ability to deliver services at scale.

Say your enterprise delivers a service at different levels—Bronze, Silver and Gold—reflecting the added cost of delivering the higher-level service. What if the cloud allowed you to offer all of your customers a higher level of service at a lower cost? What impact could that have on your business?

Cloud’s “Killer App”

Perhaps the final entry in the “return” column has to do with the potential of cloud services enabling technologies. Every IT paradigm shift has had its “killer app”—for the cloud, I believe it is Big Data. Imagine you’re a retailer and you want to make sure the right product is on the right shelf at the right time. The ability to deploy Big Data analytics on cloud platforms is the key to solving those kinds of complicated problems, driving real business advantage and ROI.

Moving to the cloud requires a different approach to calculating return on investment. For enterprises focusing only on short-term costs and traditional metrics, deploying cloud apps may or may not add up. But for organizations that value things like business agility, development productivity, customer retention, and market leadership, the business case becomes far more compelling.