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What are the cloud computing cost savings exactly?

Cloud Computing Cost SavingsRe alleged cloud computing cost savings, in the cloud someone has to pay for the servers, IT, etc. so how do you expect companies to really believe it will cost them less when someone still has to buy and manage all that infrastructure? Further, how can that work for big companies where the cloud company has to, presumably, buy many servers and people to support that customer?

This cloud computing cost savings question was asked by an attendee during the Proformative webinar "The Evolving Role of Finance Leaders: Owning Technology" held on November 14, 2012.  A video of the webinar can be viewed here: https://www.proformative.com/resources/webinar-video-evolving-role-finance-leaders-owning-technology

Answers

Tom Kelly
Title: Managing Director
Company: T > Edward, Inc.
(Managing Director, T > Edward, Inc.) |

Consider some of the following personal experiences I have had with the Cloud:

With Cloud Computing, employee's computers will cost less, because essentially all the work is done in the cloud, leaving very little for your local computer (or device) to do. Therefore, with cloud computing you no longer need an expensive computer or a complete MS Office for each computer. This alone can save you hundreds of dollars per employee.

With Cloud Computing the employee's computers or devices used to access the Internet and their Cloud environment is now open to a large variety of options from iPads, netbooks, and a variety of industry specific devices. As just an example how these options can mean greater efficiencies, and improve service to customers or clients, one can look at just about any service or delivery company. Managers can track real-time where servicers are, documents can be signed and immediately filed in the clients account, request for part orders can be place while the servicer is on premise, and the list goes on and on.

Cloud Computing has lower software costs. With Cloud Computing a lot of software is paid on a monthly basis which when compared to buying the software in the beginning, software through Cloud Computing is often a fraction of the cost.

Cloud Computing allows companies to quickly remove associated computer costs when the number of employees decrease, which could be used to address costs associated with seasonal, or project-based employees, or changes in the business-cycle, or an economic downturn.

Cloud Computers can be preconfigured for how your company wants computers to be setup. This allows you to have new employees ready right away and avoid the higher cost of adding a computer through the traditional route which could take hours to setup, install, and configure the applications your company uses.

Along with the cost-savings for the employee's computers, recall the server or servers when purchased in the traditional method are actually over-designed to allow the company to continue to use the resource for about three to four years before being replaced.

Cloud Computing gets rid of this large upfront cost for a company's servers.

Cloud Computing further eliminates the additional costs of the associated over-designed portion that is required when buying a traditional server. Cloud Computing is able to do this because with cloud computing you can add memory, hard drive space, and processors all in just a few minutes, and without a disruption in service),

The ability to add hardware resources as you need them saves businesses using Cloud Computing additional money since as time progresses the cost for RAM, CPU (processing power), and hard drive space will all decrease.

Recall with your traditional server you will want to replace your hardware every three to four years to help ensure your traditional server doesn't have a hardware failure that affects your business operations.

With Cloud Computing this cost to replace server hardware every 3 to 4 years is gone. Eventually your company may want to migrate to a new operating system, the associated costs to migrate to a new operating system, is often less than in a traditional server environment.

Software costs and upgrading - With Cloud Computing much of the software your business will need can be provide by your Cloud Computing Company on a monthly basis as previously mentioned. That said, another advantage is the ability to quickly and easily test a newer version or upgrade, with the ability to quickly roll back to the previous version of the application -no running around from one PC to another (or more aptly paying someone to go from PC to PC installing and uninstalling).

With Cloud computing and software upgrades your company can save time and money. Centralized data- Another key benefit with Cloud Computing is having all the data (which could be for multiple branch offices or project sites) in a single location "the Cloud".

With Cloud Computing data on an employee's cloud PC is automatically backed-up (some providers may charge additional for this, but it is a core feature to Cloud Computing and something your company should expect). A typical desktop or notebook computer however is not set to automatically save important data on a server or elsewhere, thus a hard drive crash could either mean thousands of dollars to recover data -should the data be vital or simply lost, and time spent to try to recreate the data lost.

With Cloud Computing a lost, or stolen company's notebook, or netbook has less negative financial impact as well as risk of someone accessing the company's proprietary and sensitive data. Since with Cloud Computing the data all resides in the cloud, the person who stole the computer would not have access to the employee's cloud account. Recalling from a previous mentioned Cloud Computing benefit, the employee would likely have a lower cost netbook (or similar device) to mitigate the loss should the employee drop, break or damaged the device. Access from anywhere- never leave another important document back at the office.

With Cloud computing and an Internet connection, your data are always nearby, even if you are on the other side of the world. Easy Online document sharing and collaboration. How many times have you emailed a document you or someone else has edited and eventually multiple people have various different revisions and copies of the document and no one is really sure which the final is? Or how much additional hard drive space all those redundant emails with attachments are taking up?

With Cloud Computing and a hosted SharePoint site (or similar product to reach the same business outcome), documents are not only easily accessible, but both time to locate and hard drive space are saved.

With security and auditing in place vendors, subcontractors, and/or clients can access associated project files. Worth mentioning here again is the software (and software licensing) savings with Cloud Computing. This is important say for a SharePoint implementation and providing access to others outside your organization.

Cloud Computing is great for short-term projects- Have a short-term project that requires specific software such as Microsoft Project? With Cloud Computing, you can use the software for the duration of the project and never have to buy it.

Cloud Computing gives you the internal and external ability to quickly test a new feature, upgrade, or product or demonstrate a scenario to a client. If a client is not sure if or how something would work, the answer is as easy as loading the scenario up in the cloud for a Proof-Of-Concept.

Cloud Computing can allow branch offices to share data much faster as well as allow the parent company to more easily start new branch locations and at a lower cost point as well.

Cellular Internet connections can be used (operational flexibility) with Cloud Computing - Understand it may not be ideal, but it is possible and can be extremely effective in many cases. There are a lot of variables when using a cellular connection, so if you think you may need to use one, the best suggestion is to have a test done with the company you choose to be your Cloud Computing Company. Some popular scenarios are when you have your service reps, or delivery personnel going onsite and they need to connect into the main system to track their status, etc. In the construction industry we commonly see this used for various project sites, since getting another type of Internet connection in some areas and under some timelines would not be possible or practical.

Cloud Computing can free up office space that may be currently used by existing servers and related network equipment.

Cloud Computing can reduce your electric bill. The cost to keep servers and related equipment powered on at your office (especially if you are keeping them air conditioned) can be substantial.

Time to Market when using Cloud Computing is much faster than a traditional route of purchasing your own servers, software and associated equipment.

Cloud Computing Security -Cloud computing is more secure than most offices when properly implemented. With the ability to select what data centers hold your data, (which is important for compliance in some industries), you can use a Cloud Computing Company that selects only the most secure data centers for your data. These data centers must meet specific security requirements to have their level of certification. In addition, various levels of auditing, permissions, and encryption may be utilized when dealing with sensitive data in the cloud.

Choose what goes to the Cloud- One of the benefits for Cloud Computing is that it is not all or nothing. One of the best things your company can do is to look at Cloud Computing strategically, and consider how your business can use Cloud Computing to improve your business operations. If you want help from a team of experts, contact us today to have a consultation scheduled.

Topic Expert
Donald Koscheka
Title: Principal
Company: Bluecloud Communications
(Principal, Bluecloud Communications) |

A good way to think about it is this: Cloud vendors can maximize the economic utility of their servers and pass the savings on to you. If you have servers in the office, chances are they are spending most of their time sitting idle - so their economic utility is low. You may also have standby or back up data centers where your servers are basically doing nothing - but you need them 'just in case'.

Tom makes a lot of good points for why cloud computing is generally less expensive from the consumer's point of view - you simply need less hardware and software to support your business.

Pradeep Chauhan
Title: Founder
Company: OnContracting
(Founder, OnContracting) |

Great point Mr Sceptic. The costs definitely don't go away. It is assumed they will move from 'presumed inefficient' customers to the provider's more 'efficient use' of the same resources and be a win-win for both. But it definitely won't work if the provider miscalculates its capacity/usage/costs and has to change pricing or you miss your usage forecast. Like most innovations the Cloud makes sense for some and not for others depending on their unique situations. In the short term I think some users may benefit by taking advantage of not so sophisticated sellers- long term I think it will be a commodity so commonly used it won't even warrant a discussion.

(Agent, JKS Solutions, Inc.) |

We are at a juncture in history where to make additional advances at a rapid pace we need those who are able to make strategic investments to lay the foundations of the future. Those who are building data centers like Microsoft, RackSpace, Google, Amazon, UniData, Cloud9, Harbor Cloud, and many others have seen the future and are making investments for lack of a better phrase, for the greater good.

Today the cost of development is very low because of these generous behemoths. Not to say they give it away for free, but they do not charge the full value of the services at this time.

The backbone must be constructed first and early adopters test the concept then as soon as possible new applications are developed. Strategic agreements are negotiated between the datacenter companies and the software vendor to ensure licensing can be administered. Security is developed. And finally we are in the round of frenzied marketing efforts to convert the world to the ready platform.

They said last year that security would take an additional two years to be prevalent.

The architecture and the data exist now so now there is a push to develop analytics around big data to tie the rest of the empty space together to take the most advantage of the customer by controlling prices through dynamic pricing models.

Society is creating enough profit for the development to continue, never fear.

Topic Expert
Barrett Peterson
Title: Manager, Accounting Standards,
Company: TTX
(Manager, Accounting Standards,, TTX) |

It doesn't necessarily. It enables flexibility, and can provide technical expertise. It will change timing of cash flows. It requires management.

Kelly Battles
Title: CFO
Company: Bracket
(CFO, Bracket) |

Wow there are some great answers here but just to add my synthesis of what we hear from our prospects and customers say: In terms of IT and overall costs differences and Cloud savings, Cloud applications’ total cost of ownership is typically a fraction of on premise technologies TCO over a 3-5 time horizon. From an IT perspective, Cloud technologies are multi-tenant and based upon a single code base across their customers. This creates economies of scale that save IT and IT staff dollars. Cloud vendors can then pass these IT savings on to customers. Also typically implementations are simpler and faster saving customer professional services costs and upgrades are typically included in the annual license subscription fee so there are no incremental costs and they typically don’t require services to implement. Also cloud apps are typically easier to use and with browser access more collaboartive so human costsfor things like training and report adminstration are lower. Finally many of our customers are also excited that cloud technologies are "greener" or more efficient from an energy point of view.

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