Will the Cloud Save You Money?

Will moving your applications to the Cloud achieve cost savings? Contrary to popular belief, the answer is more complex.

 

By Phillip Scroggin

Phillip Scroggin is the Business Development Manager at Progressive Technology. Phillip wears several hats for the technology consulting firm, including writing copy that reflects Progressive Technology’s consulting philosophy and IT best practices.

Cloud computing is, and has been, a transformative technology model for businesses and consumers alike. The Cloud model has been gaining mass popularity for around eight years now, and the momentum has yet to wane. A recent survey by an SMB and midmarket IT market research firm projects SaaS (Software as a Service, the most popular ‘flavor’ of Cloud computing) will reach 94 percent penetration in the U.S. SMB market by year’s end. It is evident that small organizations are buying into the hype and/or benefits of the Cloud.

A Lot of Benefits, a Lot of Hype

Both the hype and benefits associated with Cloud computing are numerous. Hosting applications in the Cloud, rather than locally, provides small businesses with enhanced scalability. Most cloud service providers can offer you a platform that can scale to user count and geographical reach more easily than a locally-hosted version. In general, Cloud computing offers SMBs more mobility, flexibility, and leading-edge capabilities compared to what they could gain in purchasing a server to run the same platform from their facility.

The Cost Savings Message

Perhaps the most ballyhooed benefit of Cloud computing in the small business world is potential for cost savings. Software vendors like Microsoft, Adobe, and Quickbooks tell small businesses that running their applications locally with a server, version upgrades, patches/updates, and frequent backups is too cumbersome and costly compared to their newer, Cloud-hosted offerings.

Why spend all that man-power and capital budget on IT support and hardware when you can run your organization through a browser, using the latest-and-greatest tech, on a pure operations budget?

Pump the Brakes!

Small organizations should evaluate the Cloud for all their technology needs, but not on the assumption of guaranteed cost savings. Like many technology trends, the marketing hype of features can grow to legendary status (well beyond the actual benefits they provide). Many can remember a time when it was common belief that the desktop (and most laptops) would go the way of the Dodo bird in favor of iPads. While tablets have had a significant impact on consumers and business professionals alike, they were unable to replace a work desktop or laptop. Design limitations on input capabilities and computing power, combined with aggressive adaptations in the smartphone and laptop industries, have relegated tablets to a more niche use. In the same manner, the true potential for cost savings in going to the Cloud has been conflated with “the Cloud is always cheaper”.

The Five-Year Comparison is Best

When comparing costs between a locally-hosted application and a Cloud-hosted application, it is best to run a five-year cost projection. Doing this gives you a more accurate Total Cost of Ownership, which you can then weigh against the benefits of each deployment method. Cloud options will very frequently be the less expensive option over one to two year spans, because there is little-to-no capital investment upfront (like labor and hardware). On the other hand, cloud service subscriptions are never-ending costs, and many hardware vendors will try to compete with the low upfront cost of Cloud by offering attractive leasing options.

Buy vs Lease

Over the recommended five-year projection (the average life-cycle of a business-class server), you may be surprised to find how often on-premise is less expensive than the cloud-hosted alternative. One example that many clients run into is moving to Office 365 vs deploying a new server which hosts Microsoft Exchange. Some clients opt to deploy O365 for its mobility, operating investment, and latest-and-greatest features. Others take the long-term cost savings of on-site Exchange, and are content in foregoing some of the premium capabilities of O365. Much like buying vs leasing a vehicle, each option has its distinct costs and benefits.

A Beneficial Dilemma…for the Well-Informed

The short of it is, this dilemma is a great benefit to small organizations…so long as they take the time to evaluate all variables. As an IT consulting firm in operation for over sixteen years, we have been providing guidance to organizations since before “the Cloud” was a thing. This has enabled us to see first-hand the transformative impact of Cloud-hosted platforms on small organization productivity and growth. Knowing your options is the key…when paired with an understanding of your business needs and your current technology strengths and limitations (which can’t be discerned from a few Google searches).

When the time comes for your organization to review Microsoft Exchange vs Office 365, QuickBooks on-prem vs QuickBooks online, NAS vs Dropbox for Business, or on-site backup vs hosted disaster recovery, remember that the Cloud will offer distinct advantages…but they may come at a premium.