IT Business Consulting

Cloud costs require greater clarity

Ian Cahill Ian Cahill

Cloud computing is evolving rapidly, but the commercial value is still being weighed in favour of the suppliers.

In 1972, Chinese premier Zhou Enlai was reputedly asked what he thought was the historic impact of the French Revolution. After considering the question for a moment he is said to have replied: “It’s too soon to tell”. This statement can in a way be applied to cloud computing in 2016. While the technology is maturing rapidly, true clarity around cloud costs and contracts remains underdeveloped.

In today’s world, IT and business strategies converge as IT is intrinsically linked with the business strategy of modern organisations both big and small. The explosion of cloud is a feature of this trend and while there are many positives, it behoves the buyer to beware of the hidden impacts and costs of cloud computing, a sample of which include:

Business case

Understand your current costs in detail before deciding that cloud will save you money. Make sure you know all the components and costs that go into delivering your on-premise solution and map how moving to the cloud will impact them.

Hidden costs

Hidden costs are lurking everywhere and quickly undermine a cloud business case. Headline figures often do not show the true cost attached with a cloud service. Examples that can lead to nasty surprises include: post-promotional period pricing, back-up fees, storage fees; threshold breach charges, additional instances and language packs. Similarly be aware that the much vaunted ‘elasticity’ of the cloud does not mean that a reduction in your requirement results in a reduction in your fee.

Switching cost

Do not assume that your software licences simply ‘transfer’ if you move that same software application to the cloud. There is often a migration fee involved. Similarly, do not underestimate the costs involved in switching from one cloud provider to another (or bringing your application back on-premise).

Suitability for cloud

Is the application you are migrating suitable for the cloud and have you factored in the time it will take you to implement it? While certain cloud solutions can be operational in a very short time, a cloud enterprise resource planning (ERP) implementation, for example, will still take time to get up and running and you may have paid your annual subscription fee up front. Supplier ecosystem 

Contract dangers

Beware the hidden subcontractors - a cloud provider is only as good as his weakest subcontracting company. Many, in fairness, do not engage subcontractors, but you need to know.

Another danger is a lack of clarity on where and how your data is stored, with whom it is co-located and how you can get it back if you need it. Similarly, regarding service levels, pay close attention to the performance targets and the credits you receive when the cloud provider fails you – both are often underwhelming. Likewise, be aware of an annual inflation plus a percentage uplift on your subscription fee. 

In summary, the cloud is here to stay and this is largely a good thing. However, it is your responsibility to read the contract (don’t just click ‘Accept’), understand the costs and model the impacts on your business over a three to five year period. Exit and renewal clauses should be studied, total costs of ownership should be computed and be aware that your supplier management capabilities will be tested.

Cloud computing technology is evolving rapidly, but we are still early in the contract and commercial maturity stakes, with these being weighted decidedly in favour of the cloud supplier. We do not know when a more equitable balance will be achieved – it’s still too early to tell.

First appeared in The Sunday Business Post November 27, 2016