16 Sep 2011

How much can you really save in the cloud?

How much can cloud computing save you? The first part of the answer is “probably quite a bit” and the second part is “it depends”.

Most SMEs are now familiar with what the cloud offers – easy scaling (whether up or down) and lower costs through pay-for-use pricing and the elimination of big capital expenditure.

Quantifying those savings depends on your business, how you’ll use the cloud, and how far you’re prepared to go.

Interestingly, when we asked our cloud customers, 70% weren’t sure beforehand what type of return on investment they’d achieve.

More than half, however, said that they were coming to the cloud because of its pricing. (And almost that number again said they were making the switch to get better access to expertise – both of which are key value propositions for SMEs).
So do cloud converts save?

The short answer is yes. In order, the top benefits cited by our cloud users are cost savings, reliability, scalability and performance.

Clothing retailer City Beach for example – who are using the cloud to host their eCommerce site – say they will save 30% on total cost of ownership over three years, compared to keeping things in-house.

Bankstown City Credit Union say that through the pay-per-use model their capital expenditure on infrastructure has “dropped dramatically”, and the same is true for financial advisers Count Financial, who point to electricity, air-con, insurance and hardware savings.

But it’s also true that SMEs shouldn’t head blindly for the cloud expecting automatic savings.

There are a number of factors that affect how much SMEs can save:

Licensing costs
SMEs are often surprised to find that the software licenses they’ve already purchased aren’t good for the cloud. Instead, software providers like Microsoft supply more flexible licenses for the cloud, known as Services Provider License Agreements (SPLAs).

What this means is that for SMEs, the biggest cost savings come from switching to the cloud when you’d normally be upgrading your systems as part of your refresh cycle.

Exit costs
Remember that going to the cloud isn’t a cure for future change. You might want to switch providers eventually, or if you’re using cloud applications via Software-as-a-Service you might want to move to a better platform should one come along.

The costs of making these changes are ones to be wary of. SMEs should make sure that cloud contracts deal with what happens in the event that they choose to terminate a contract early. They should also make sure that there are easy methods for extracting their data should they wish to move.

The cheapest isn’t necessarily cheapest
Cloud services – especially Infrastructure-as-a-Service (IaaS) – are relatively new. While some providers have years of experience delivering them, many do not. Cost savings will evaporate in a cloud of support expenses if providers are learning at customer’s expense. Your business should look for mature products, good customer references and proven experience.

On the same theme, SMEs will also benefit by teaming up with providers that are the right size. If you’re a small business, don’t become a small customer of a big provider. If you’re mid-sized, find a provider big enough to support your needs.

For most, the key to extracting savings from the cloud is simply to understand exactly where it’s going to save you money, then managing the project with that in mind.

The savings can be found anywhere from eliminate capital investment, to ongoing upgrades, to improved reliability of service. SMEs simply should know where they are and keep a tight reign.

Dave Stevens is MD, Brennan IT

(This blog post was first published on the SmartCompany website on September 15 2011).