Predictions 2013: Cloud Economics Will Shift Beyond Cost

This is the 2nd post in a series expanding on our 2013 cloud and storage predictions.

For years the primary benefit cited for moving to cloud-based services has been the low cost of entry. And this is the area that cloud providers have focused, leading to big price wars that still continue today. A great example of this trend has been the continuing price reductions in cloud storage and backup.

What people often fail to recognize is that while the initial expense of using a cloud service can be extremely low, the ongoing costs can add up. Basically you are trading a one-time capital cost for ongoing operational costs.

Think of the difference between buying and hosting your own Outlook mail server versus paying $10 per month per mailbox for a hosted solution. For a small company with just a few employees, the latter almost always makes more financial sense; but for a large business, the former may seem more appealing. This is one reason that enterprises have been so slow to adopt cloud services.

We predict that in 2013, the economics of cloud services will shift with low entry cost no longer being the main decision driver. Instead, IT professionals and business leaders will recognize other intrinsic, as well as less obvious, economic benefits of moving to the cloud, including:

  1. Flexible – With on-premise solutions you must plan for (and pay for) peak periods. This means that you are either conservative and buy much more than you will likely need in the products lifetime, or you are a gambler, hoping you won’t hit the limits you’ve imposed with your frugal ways. Cloud services eliminate this problem, allowing you to expand and contract as your business needs change. This flexibility realizes operational and financial benefits.
  2. Secure & Durable – Obviously you need to do your due diligence before choosing a cloud provider, but, in general, they will provide some decent SLA which guarantees that your data is protected from security breaches and disasters. And many companies are willing to pay a premium for even better, let’s call them “Cadillac”, SLA’s. This built-in security and durability is an added cost which you must shoulder if managing your own solution. And if you are one of the estimated 15% of small and medium size businesses that don’t even bother backing up your data, a disaster could lead to ruin.
  3. Increased Productivity – People love the convenience of cloud services, which allow them to access their content from anywhere connected to the internet. Companies that are behind the curve on cloud adoption are learning this the hard way with employees circumventing the IT department and using services that allow them to work the way they want to. Smart businesses recognize that cloud services allow their employees to be more productive and to work on their schedule. This has obvious economic benefits, but also can be crucial in increasing employee job satisfaction which has long term benefits that are header to measure.
  4. Always Up to Date – The larger an organization is, the slower they will be to adopt the newest version of a piece of software. You only have to look at Windows XP, now over 11 years old and still in use across 38% of enterprise systems, to see the problem in action. And it is an understandable result of using on-premise solutions. Not only are there huge capital costs to upgrade, but the business must incur massive labor costs to perform the work, train employees on the (often) vastly changed product, and overcome new challenges that are bound to crop up. Then there are the inevitable bugs and the protracted cycle before a patch is released. Cloud services, on the other hand, improve incrementally with major overhauls being few and far between. Bugs are found and fixed in near real time and users are excited to adopt the newest features. Additionally, since you pay for the product on a contractual basis, you never have to worry about planning for large capital costs for upgrades.
  5. Extends the Useful Life of Existing Infrastructure – It used to be common for businesses to replace desktop PCs every few years, with servers and network hardware going out of style even sooner. With the advent of cloud models we see the pace of hardware replacement slowing down. This is happening for a number of reasons. First, companies that were previously storing all of their files on local servers are now using cloud services for collaborative work as well as storing customer data. This shift means hard drives fill up slower and lightens the network load. Additionally, cloud applications must be delivered over the internet and generally operate in the browser which forces developers to build more efficient applications that are less resource intensive. The machines employees actually use don’t require much processing, storage, or memory capacity so obsolescence is delayed. Finally, distributed models, such as Symform’s cloud storage and backup network and SpotCloud’s CPU cycle marketplace, are increasingly allowing businesses to get more value out of the physical infrastructure investments they have already made.