Total Cost of Ownership For Cloud Computing

Sometimes it seems like small and medium businesses (SMBs) and mid-market enterprises can’t catch a break. Even before the recession struck, many were struggling to compete in increasingly competitive and demanding business environments. Keeping up with these demands and trends- from fast-evolving technologies to changing customer expectations to new, sometimes global, competition-made life increasingly challenging for SMBs. Then the recent global recession hit hard, and in many cases, limited resources and reserves made it tough for SMBs to bounce back.

Even as we emerge from the recession, these ongoing pressures and fiscal uncertainties continue to weigh on SMBs. Consequently, Total Cost of Ownership (TCO) is a top consideration when evaluating potential business applicationoptions.

The good news is that cloud computing has come of age, and is providing SMBs with access to computing resources and capabilities that were once out of reach. More businesses are determining that cloud-based services, especially software as a service application offerings, can provide SMBs with more powerful and capable solutions while decreasing capital outlays and operational costs.

Cloud computing eliminates the need for individual companies to buy, deploy and maintain IT infrastructure orapplication software. In the cloud computing model (also known as software-as-a service,or SaaS), the vendor takes responsibility for deploying and managing the infrastructure servers, operating system software, databases, data center space, network access, power and cooling, etc.) and processes (infrastructure patches/upgrades, applicationpatches/upgrades, backups, etc.) required to run and manage the full solution. Because cloud vendors manage all of their customers on a single instance of the software, they can amortize infrastructure-related costs over thousands of customers. This results in substantial economies of scale and skill, reducing the total cost of ownership (TCO) for customers who deploy business management solutions.

Factors to Consider

Cloud solution cost advantages are significant across all deployment sizes, but taper somewhat as the number of users increases

Application software costs (subscription and support fees) account for roughly 85% of the total solution cost in the cloud model. In the on-premises model, application software costs (including the upfront license fees and annual maintenance fees) constitute just 23% of the total
solution cost.

Customers do not incur any direct IT infrastructure and related management costs with the cloud model because subscription fees encompass these costs. In the on-premise deployments, IT infrastructure (hardware, software, maintenance and ongoing management of the infrastructure) costs range from 51% (in a 50-user scenario) to 45% (in a 200-user scenario) of the total solution cost over four years. This category accounts for the biggest difference between the TCOs of the two models.

Because of these factors, it is important to do a complete total cost of ownership analysis before making a decision on whether or not to maintain applications on premise or migrate them to the cloud. Please keep in mind that certain line of business applications or customized applications may not migrate well. A competent cloud advisor can assist you in evaluating the total cost of ownership among a variety of cloud providers and assist you in evaluating whichapplications should migrate or be virtualized in the cloud.