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Squeezing savings from the cloud

Nancy Gohring | April 23, 2013
Determining whether cloud services will pay off is an extremely complicated process. Here's how to compute the ROI.

The Scale Issues

Architecting scale also is a challenge that comes with cost repercussions. "Just as in the on-premises world, where capacity is kind of an art more than a science, it's the same in the cloud," Eisenberg says. "It's easy to say 'I'll just have more capacity than I need,' until you find out the high costs associated with doing that."

SaaS deployments come with their own set of potential cost overruns. SaaS providers often offer their best deals to customers that agree to multiyear contracts. But that leads to vendor lock-in and restricts users from switching to services that might better meet their needs. "So you have this three-year contract. Maybe you outgrow it or maybe you find another app that does a similar thing but better," says Connor Sullivan, an analyst at IDC who follows cloud computing. Businesses in that position likely feel trapped with an app that's not the best fit or they end up "double-dipping" -- signing up for a new service at an added cost, he says.

Businesses also should thoughtfully consider costs over time. It turns out that prices for SaaS apps in general aren't coming down the way that many people once predicted. Historically, the thinking was that as more users turned to cloud services, economies of scale would reduce costs for all, Sullivan says.

Some providers like have true multitenant cloud services and are benefiting from scale. While Salesforce is passing those savings on to customers, it is also continually adding new features, which cost extra. "People want those new functionalities and so the cost to the end user hasn't gone down," Sullivan says.

"The message we've been drumming is it's all about scale," Eisenberg says. "If your business problem is not about scale, cloud is in all likelihood not your ideal solution."

The type of workload an organization hopes to move to the cloud will also determine whether the transition makes sense economically. "We have paid close attention to what sort of circumstances make for a successful cloud deployment," the GSA's Coleman says.

Underlying the decision is the pressure on IT managers from their bosses, "who are looking at the success of Amazon and saying, 'Why can't you take 10% off your budget?'" Brien says. At the same time, those IT people don't want to rush into using a cloud service for the wrong reason only to see it cost more or impact their service levels.

All those pressures mean that enterprises are taking it slowly. Larger businesses are still at the stage of "primarily playing around" with the cloud, Brien says, as they try to decide which apps make sense there. "They're just moving slowly, doing it bit by bit," he says.

"It's really early days, even though all you ever read about is the cloud," he says. "The overall economics of the cloud are that it will ultimately absorb most machine cycles, but it will not happen as fast as people tend to think it will."


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