Cloud services can save you money -- if you're careful

Calculating the real ROI of cloud apps requires the analysis of a lot of factors, and cutting corners on that process means you might not save money.

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The key to earning a positive return on investment when adopting cloud services -- including software-as-a-service and infrastructure-as-a-service -- is carefully studying costs and benefits to ensure that such a shift will pay off.

Sounds like many of the other IT projects you've shepherded, right? But it turns out it's incredibly complex to determine whether a move to the cloud will pay off for a given application. When done in haste, that analysis can lead companies to adopt the cloud for the wrong reasons, leaving them with higher costs or an inferior product when compared to an on-premises installation.

The good news is that despite all the hype around the cloud, it appears that many businesses recognise the dangers and are proceeding with caution.

"It is significant that the enterprise market is really moving to the public cloud at quite a glacial pace, and I think it's because they know ROI is much more complex than just the avoidance of hardware and software costs," says Marc Brien, vice president of research for Domicity, a consulting and IT analysis firm.

It is significant that the enterprise market is really moving to the public cloud at quite a glacial pace, and I think it's because they know ROI is much more complex than just the avoidance of hardware and software costs. Marc Brien, vice president of research, Domicity

There aren't comprehensive estimates for how many enterprises are using cloud services. Amazon Web Services, the most popular IaaS offering on the market, doesn't reveal such detailed stats. However, Cloudyn, a company that monitors AWS usage for customers, says that just 11% of Amazon's AWS customer base around the world has more than 1,000 employees.

Software-as-a-service offerings from certain providers like Salesforce are much more popular in enterprises, with niche or legacy app cloud services a mixed bag in terms of enterprise adoption, Brien said.

Among those businesses that are using cloud services, there are plenty of success stories showing that the cloud can significantly cut costs. Nucleus Research examined 70 case studies of companies adopting SaaS and found that the services offered 1.7 times greater ROI than on-premises apps, largely due to their ability to offer increasing benefits over time without a proportional increase in costs.

But there are also some businesses that are adopting cloud services and regretting it. Nucleus Research found in a survey that 52% of cloud CRM customers were willing to consider switching vendors within six months. "What we saw was that companies had often been sold aggressively and they spent less time on due diligence and planning," says Rebecca Wettemann, an analyst at Nucleus, which offers IT research and advisory services.

The cloud doesn't fit all use cases. "It's not a silver bullet. It's not the right answer for every situation," says Casey Coleman, chief information officer for the General Services Administration.

Only fools rush in

As the first federal government agency to deploy a cloud-based email service agency-wide, the GSA didn't have a road map to follow, says Coleman. So beginning in May 2009 it thoroughly examined its current costs as well as projections for the cloud service.

"It is the case that it has to be well thought out and methodical. This is an IT project like any other. You have to plan for change management, promote user awareness, ensure cyber security in contractual terms, like with any IT project. If you don't approach it in that manner, you might have a different experience," Coleman says. "The promise of cloud computing has been borne out in our experience."

Moving to the cloud "has to be well thought out and methodical," says Casey Coleman, chief information officer for the General Services Administration. "You have to plan for change management, promote user awareness, ensure cyber security in contractual terms, like with any IT project."

When the GSA adopted Google Apps for email in July 2011, it was able to realise added cost savings by also transitioning non-email systems that were attached to its legacy email system. The agency had been using Lotus Notes for email, plus Domino for workflow apps. As part of its review of adopting Apps for email, the GSA took a hard look at the Domino apps. "We ended up reviewing those apps and eliminating most of them," she says.

The GSA had 2,000 apps in Domino, ranging from small databases to more substantial workflows. It got rid of all but 500 of those apps, with many consolidated and reworked in Force.com. Cutting so many apps meant that the GSA could then turn off 300 in-house servers, Coleman says.

Those savings plus others meant the GSA projected that it would save $16 million over five years by moving to Google Apps for email -- and to date that estimate is proving to be accurate, Coleman says.

Not every transition to the cloud will save that kind of money, but closely examining costs and benefits may reveal that the cloud makes sense even if it doesn't impact the bottom line.

In 2009 when Northern Kentucky University switched from on-premises Exchange for student email to Microsoft's hosted offering, known then as L[email protected], it didn't save money over its existing implementation. But the university gained value because the service allowed for easy integration with smartphones and online storage with SkyDrve. "So even though the costs were flat, it provided more services to students," says Tim Ferguson, CIO for the university.

The hosted service also allowed the university to boost the size of student inboxes. "What we were able to offer to students when we hosted email on site was minimal at best," he said. "With the move to the cloud-based email, students now have enough email storage to meet their needs."

Ferguson studied what it would have cost to adopt the latest version of Exchange and upgrade storage capacity to match what was offered with the hosted Exchange, and he estimated the additional annual cost would have reached $100,000. Instead, by moving to the hosted version, his costs remained flat, while gaining functionality.

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