Cloud computing ROI has always been touted as a reason to move customers to the cloud. But calculating it can be more difficult for some customers, especially SMBs. By Ellen Muraskin
December 05, 2011
Cloud computing ROI has always been touted as a reason to move customers to the cloud. But calculating it can be more difficult for some customers, especially SMBs.
By Ellen Muraskin
Judging by industry press, you’d think all business IT everywhere was just waiting to leave its earthly, on-premises server embodiment and rise up into the cloud. Not so. You still have to make the ROI case for cloud migration or installation, and that’s easier for some applications and businesses than others.
“Standardized, discrete, and more generic applications, like Exchange, are the easiest for our customers to put in the cloud,” says Anthony Bongiovanni, president of Micro Strategies Inc., a systems integrator based in Denville, N.J. “CRM is another good application area, because it tends to have less integration with core business systems.”
A recent report from Forrester Research Inc., The ROI of Cloud Apps, by Liz Herbert and Jon Erickson, agrees: Applications used by workforces with a lot of churn, like sales, tend to make more use of the cloud for its quick deployment, scant training requirements, and inherent mobility, says Herbert. Core business applications and financial applications, by the same token, make harder ROIs. They require greater customization and integration, and have more stable user bases that are likely to undergo more software training.
The ROI benefits of the cloud are by now fairly familiar: savings in costs of maintenance, upgrades, cooling, power, security, and rental space, as well as IT staff. Then there’s the harder-to-quantify but critical advantage of freeing scarce SMB staff to concentrate on their core business.
On the cost side of the cloud equation, implementation charges are considerable. These can include initial due diligence when choosing vendors, the management of multiple SLAs, account setup, data migration, third-party process consultation, and training. Ongoing charges can be by the seat, by the minute, by the gigabyte for storage, or by CPU cycles, depending on the nature of the application.
But getting numbers to plug into the calculator may be difficult at smaller businesses. “In a business large enough to have its own IT staff, “you know generally what salaries are going to be, so you’re ball-parking a lot of the numbers” when figuring man-hours saved, says Bongiovanni.
“All the vendors provide ROI calculators. We’ve found that they work well in large, complex environments,” says Ron Mente, client solutions executive at Micro Strategies. “If I can go to a data center manager and ask him his costs of cooling, power, and I can roll in the hardware and software costs of the environment and plug in all the variables, I have a story that resonates.”
The small customer, on the other hand, doesn’t have a lot of figures available, or much staff, or server space to save by moving to the cloud. That customer is more interested in the value of the offering than the financials.
To this customer and especially to start-ups, says Mente, the most popular ROI factor is the avoidance of overprovisioning. “Cloud ROI is all about using the compute cycles when you need them, and leaving them in the pile when you don’t,” he says. “To implement hardware, software, and bandwidth internally, my [online music service] customer needed to install for the high water mark. But he’d use maybe 10 percent of that at any given time. We showed them the numbers, the buy-or-cloud approach, and we showed them the hybrid approach.”
In a hybrid cloud scenario, on-premises servers offload overflow processing or storage or port load to the cloud. Says Mente: “The peak needs, the seasonal needs where you can ramp up into the cloud, have shown us the best hard dollars in the ROI conversation.”
Stratalux Inc., a Santa Monica, Calif.-based reseller that manages clients’ hosting through Amazon’s EC2 Web Services, specializes in software developer start-ups that operate on a SaaS model themselves, licensing their software through a website. These customers have little idea of their initial server and bandwidth load. The same elasticity that accommodates peak traffic also gives Stratalux’s software customers a better idea of demand when and if they do bring their platforms in-house.