IT has its great debates: PCs vs. Macs, Windows vs. Linux and, more recently, cloud-based services vs. on-premise systems. There's lots of ongoing discussion, some of it pretty heated, about whether the cloud is more cost effective than on-premise infrastructure and applications over time.
There's little doubt that software-as-service and other cloud-based services can save companies lots of money in upfront costs, as illustrated by retailer 2nd Wind, wihich sliced more than $500,000 from its annual IT budget by switching several of its applications to SaaS. Yet software isn't that different from other products and services that can be leased rather than purchased in that users tend to pay more for SaaS over time, say Gartner and many other analysts. Consultant Bernard Golden says it's tough to make comparisons because many organizations have trouble determining how much they really pay for their IT systems.
The CTO of auction business PropertyRoom.com, interviewed in a SearchCIO.com story about the costs of cloud computing services, says he saved a half-million dollars in infrastructure costs by cutting a $10,000-a-month deal for cloud-based services rather than investing in internal systems. Within five years, he expects costs will shift to favor an in-house model. In the meantime, though, the company has made other cost-savings investments such as building an additional warehouse closer to its customers, which will reduce transportation expenses.
That's a point I think often gets overlooked in cost comparisons. It's hard to calculate the impact of investments companies can make with the freed-up funds that might otherwise have gone into their IT systems. Many comparisons are based on assumptions that the internal system a company invests in now will still be the one best suited to meet its needs in five years. Seeing how many sectors already struggle to keep up with the rapid pace of change in today's economy, I think this seems like an increasingly dicey proposition.
The SearchCIO.com article also makes the point that folks need to be aware of fees that can drive up the cost of cloud services. Some internal software development may still be needed, for example. Thoroughly vetting vendors, asking lots of questions and keeping the evaluation and negotiation processes as transparent as possible is good advice, whether you're purchasing internal systems or cloud-based ones.
It's worth remembering cost may not always be the primary reason to deploy SaaS and other cloud services. In a SearchSAP.com article, Ovum Research's Warren Wilson says he thinks ease of use and other factors will be just as important as cost when considering the cloud. He says:
I feel like the prices are going to be in the same ballpark and the question is going to be time-to-benefit, ease of management and ease of use. And those characteristics will continue to make SaaS a very popular option, even if it is a little more expensive over the long term.