An Argument Against the CloudAn Argument Against the Cloud

An online tool agrees with estimates that the break-even point for cloud based vs. on premises systems is about 3 to 3.5 years.

The cloud cannot be ignored. Cloud hype extolls the values of moving IT and communications functions to the cloud. But as with any technological change, there will be concerns and doubt as well. At the top of the list are security, privacy and compliance concerns. There is also the loss of some control, maybe limited functions and features with little customization, and limited liability agreements. When the enterprise subscribes to Software as a Service (SaaS), the concerns are greatest because this is the case where the enterprise has moved the entire function to be resident in the cloud.

When an enterprise is considering Communications as a Service (CaaS) which includes Unified Communications (UCaaS) capabilities, the same issues that arise with SaaS are part of the cloud migration decision. The final decision is really financial, not technical.

The Info-Tech Research Group provides IT research and advice, along with ready-to-use tools and templates that cover the full spectrum of IT concerns. One of the tools I was reviewing covered the financial aspects of subscribing to cloud services vs. an on premise solution. The "Cloud Service TCO Comparison Tool" is available on a free trial from Info-Tech. The InfoTech site states, "To get the desired value from implementing a cloud solution, organizations should constantly know exactly how much cloud services are costing and the cost of alternatives by managing an effective cloud service portfolio. Two types of TCO comparisons can be conducted using this tool: TCO of a cloud service vs. TCO of providing a service internally, and TCO of multiple cloud services."

This tool offers an example tab for each section that provides a real-world TCO calculation. You can use the example to understand how to calculate TCO for an organization. When the tool is accessed, you can choose to view an example first, or you can start doing your own calculations immediately.

This tool can help the enterprise to analyze factors such as:

* Hardware costs
* Integration and installation costs
* Related facilities costs
* Cost per user

The example below is for a TCO calculation for cloud based Saleforce.com vs. a Siebel installation. The same evaluation process can be performed by comparing an IP PBX and/or UC system to equivalent cloud based services.

When the TCO is analyzed over a five-year period, the table and accompanying graphic illustrates the total cost for the on-premise system is higher in the first three years, then the on-premise system is better financially when years 4 and 5 are considered. Many VARs have also calculated that the break-even point for cloud based vs. on premises systems is about 3 to 3.5 years. If the enterprise is considering keeping the solution for more than three years, the on-premises system is cheaper. If it is to be replaced in about three years, then a cloud solution is more attractive.

Source: Info-Tech Research Group

In another Info-Tech report, the enterprises polled were asked whether they realized the savings as expected from cloud services. The Info-Tech survey produced a surprising result. Most of the respondents did not gain the savings as expected. See the graph below that demonstrates that neither the capital nor operating expenses were reduced as much as anticipated.

Sources: Applied Research and Info-Tech Research

There are still good reasons to consider cloud based services. However, when presenting the cloud solution for management consideration, it would be wise to calculate the five year TCO even if it does not look favorable. The presentation of cloud services should promote other values to the enterprise that can offset the poorer TCO analysis.