CIO Symmetry

Mar 25 2010   9:03PM GMT

Cloud computing pricing sky high for some

Christina Torode Christina Torode Profile: Christina Torode

CIO Rich Secor decided to look into cloud computing pricing to see what all the buzz was about. Could it save his company, Health Advances LLC, some money? Could it provide better application performance?

These are the questions he set out to answer, and based on his calculations the answer was a big NO to both — at least from the point of view of an organization with fewer than 100 employees.

Health Advances provides strategic consulting service to the health care industry: project teams help pharmaceutical, biotech and medical device companies bring new products to market and help them raise capital for clinical trials and other projects. Many of its employees are scientists and project managers who rely heavily on applications such as PowerPoint to get their jobs done.

What he found was application performance would suffer if employees had to go over a WAN connection to get to the cloud provider’s infrastructure and back, versus using their own servers. Sure, a very fast Internet connection could be bought, but the cost of that connection just didn’t add up for his company.

“It came down to either the fast WAN circuits were unavailable because of our location or they were too expensive,” he said.

If you add up the time it takes employees to open and save files over a WAN to a cloud provider and the revenue lost as a result of time and productivity wasted, Secor figured it to be about a six-figure loss per year. “That’s just for a small company,” he said.

He also found a bit of false advertising when it comes to cloud computing pricing.

“What typically happens is the teaser numbers look great — then you add in options such as the storage that you would really need, and other options,” he said. “It adds up to an unreasonably high number month after month.”

As far as he’s concerned, cloud computing is on version 1.0, and he’s not impressed yet. He’s not ruling it out completely, but pricing is definitely prohibitive.

There are many companies that are tapping SaaS for a variety of applications and others using the cloud for test and development or infrastructure scale-outs.

I’m wondering what cloud computing services make sense for small and midsized organizations, and what areas are being deemed off-limits whether due to pricing, or not?

4  Comments on this Post

 
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  • Stevesz
    I have the same feelings about "cloud" computing, though I have not done the analysis that Mr. Secor has done. Just figuring in my head tells me that the expense would be more than doing most things in house, a lost connection would mean lost productivity. I am not able to guarantee a certain minimum speed over the Internet, even with a fast connection, since there are so many places that could introduce latency, or may operate at a less than optimal speed for your usage. Having said that, I am not against using SaaS, when the fit is good. A small business with the need for fewer than 10 accounts would be a good candidate for a hosted e-mail. There are also other services worth considering, depending on the circumstance. But to move the day-to-day guts of your business into the cloud, at this juncture, is probably foolhardy.
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  • ShalomC
    rotfl, > Many of its employees are scientists and project managers who rely heavily on applications such as PowerPoint to get their jobs done applications such as PowerPoint?? You do not need a cloud infrastructure to save powerpoint files. You need Office Live or Zoho or Google Apps and save on those expensive PCs and on Office licenses.
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  • JoeGraves
    My experience with deploying SaaS applications is different than Mr. Secor. The IT department I lead has deployed SaaS solutions for sales force automation, Lead & marketing campaign management, employee performance management, professional services engagement management, document management, call center support and a few others areas. The typical license fee for these solutions is approximately the same as the annual maintenance cost of an on-premise equivalent. However, there are significant capital expense savings in avoiding the purchase of infrastructure to host the application on-premise. Plus there are additional savings on operational expenses for system management, disaster recovery, data back-ups, etc. One reason SaaS solutions are an attractive option is due to the elimination most operational issues. This allows IT to focus on higher value activities. Another area of savings, that is often overlooked, are the downstream savings revolving around the difference in upgrading a SaaS application versus an on-premise one. SaaS application upgrades are handled by the vendor and require little from the IT department. By comparison, on-premise applications typically require a project by the IT department and, perhaps, some consulting. Since a SaaS solution is less costly and less onerous, IT departments can typically deploy more solutions. Also, it allows for the deployment of solutions in situations that might be considered too small to do economically with an on-premise equivalent. It is true that there may be additional fees for exceeding storage quotas. However, my company has never been hit by a fee for storage usage or for any other excessive resource usage. Another difference is that it is usually trivial to adjust user counts down with a SaaS vendor; some allow it monthly, others annually. This allows for fine tuning and the elimination of self-ware licenses. By comparison, lowering the user count with an on-premise vendor can be difficult to do. Joe Graves CIO Stratus Technologies
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  • UB
    Here are some pointers on when cloud applications can be cost effective - http://setandbma.wordpress.com/2010/03/10/architectural-consideration-for-building-cloud-application/
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