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The Economics of Cloud Services for Business

Reducing IT cost is the leading reason many businesses have adopted cloud services for business applications. Instead of setting up and maintaining your own data center, servers, and infrastructure software, companies that opt for cloud services can realize significant savings.

SaaS (Software as a Service) is an effective way of leveraging the cloud to streamline business operations. From an accounting perspective, it transfers many IT investments from a capital cost investment to an operational expense.

There are some specific areas where cloud applications can save your company money, which you can reallocate to:

  • Outsource the configuration of the SaaS system to your business needs
  • Integration of the online system with other front or back office applications
  • Migration of your data or files from your existing system to the cloud services

These three investments help to tailor your cloud system and make it feel like a familiar part of your employees’ business day, accelerate ramp up time, and speed return on investment. There’s often more money left over for other strategic initiatives.

How Can the Cloud Reduce Cost?

When you migrate your applications and data to the cloud, there are saving opportunities with:

  • License fees and related maintenance/support fees are usually replaced by subscription fees
  • Mitigation of hardware acquisition costs, and licensing of software like web server software, databases, and reduction of server-related security systems
  • Reprioritize your IT staff to business innovation, instead of “keeping the lights on” with your network
  • Eliminate the downtime, after-hours overtime, and business disruption associated with installs, upgrades and migrations
  • Reduction in hydro and cooling costs related to data centers. Reduced costs for data center-related telecommunications lines
  • Free up office real estate for customer meeting spaces, employee offices or other high-value business use
  • Take advantage of usage-based cost models, and mitigate costs involved with high-capacity, redundant data management infrastructure
  • Contract with cloud service providers that are certified for security/compliance standards like HIPAA, SOC 2, SAS70 Type II, and CSAE 3416. Take advantage of service level agreements with availability commitments which would be difficult for your own data center to live up to

Cloud Value-Add

All of these factors are good examples of how SaaS solutions can reduce costs right away, dealing with measurable investments in salaries and products. SaaS vendors have realized how they need to constantly improve their offering, to retain existing customers, and attract new customers.
Many cloud services vendors are partnering with others, which can extend the value they provide their clients. The standardization of application program interfaces (API’s) in the cloud marketplace is providing great opportunities for customers to eliminate information silos and create efficiencies.

Complementary services, be they optional modules or third party connectors are always great savings opportunities and ways to build a business case for the cloud. Examples include:

  • Reporting capability for audits, business performance tracking and ensuring employees are using the SaaS application.
  • Extensions like mobile apps, email or calendar system synchronization
  • API’s to connect with accounting systems or intranet applications

Cost Savings Over Time

Many technology companies use a five-year timeline to demonstrate the savings opportunity of the cloud. Server hardware and application software tends to require replacement after five years, and that tends to be the nexus point where SaaS subscription costs and on-premises costs tend to meet.

With the cloud though, there is no need to rip and replace the underlying technology, as that is handled by the cloud vendor. Here are some of the factors you need to consider before making a final decision on cloud vs on-premises technology deployments:

  • Projection – How does a 5-year software license and maintenance (together with your own server) compare to using a SaaS for the same time period.
  • Contract – Terms of Use and Service Level Agreements should be reviewed carefully before locking in for an extended period of time. Opportunities to “bail” on the service, and migrate your data to another system in should be identified in case the vendor doesn’t meet their obligations.
  • History – What’s the pricing history of the SaaS you’re looking into adopting and will this affect your potential contract? If the vendor doesn’t offer fixed contract pricing, maybe you won’t save that much on costs.
  • Support – What’s the level of support and training you’ll receive? Spending thousands of dollars on professional training, before your employees can start using the application is not an ideal scenario.
  • Updates – What are the update cycles of the SaaS vendor, and how disruptive are those updates? How are new features communicated, and how receptive is the vendor to new feature requests?

There has been much said and printed about the cost savings opportunities which the cloud delivers. These are some of the direct costs which can be attributed to the adoption of online services. There are other cost savings which are more indirect, and harder to put a specific dollar figure on:

  • Empowering employees to work from home, client sites and other remote locations.
  • Creating “flex” hoteling workstations for employees instead of dedicated workstations. Potential reduction in real estate costs if employees work remotely.
  • Reduced end point hardware costs, whether it be employees using their own devices, or thin client hardware which has an extended refresh cycle and power consumption requirements.

According to cloud management vendor Rightscale, public, private and hybrid cloud adoption by small-to-medium businesses and large enterprise is on the rise. Ninety-five percent of the over one-thousand companies they surveyed are using cloud service. Over seventy percent of those companies use a mixture of public and private cloud services.

How does your company’s cloud adoption compare to those surveyed by Rightscale? Can you see how a cloud-based, secure document sharing platform would create cost savings opportunity for your company?