Uncovering hidden costs behind the cloud

Moving IT systems to the cloud is supposed to save companies money and make costs more predictable. Pricing of cloud services, however, may not always be as transparent as you think, says Dave Paulding.

Tags: Cloud computingInteractive Intelligence Inc (www.inin.com)
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Uncovering hidden costs behind the cloud Dave Paulding is regional sales director, UK, Middle East & Africa, Interactive Intelligence.
By  Dave Paulding Published  June 18, 2012

Moving IT systems to the cloud is supposed to save companies money and make costs more predictable. Pricing of cloud services, however, may not always be as transparent as you think, says Dave Paulding.

When cloud computing first moved onto the IT horizon, many of the headlines focused on how this future hosting option would save businesses money. Experts and vendors alike touted the potential savings that cloud solutions could offer to companies. As with most things in IT, however, the picture became less clear the closer you got to it. In fact, as many businesses have since discovered, there can potentially be a number of hidden costs to cloud computing that may lead to an overall increase in expenditure.

Cloud computing certainly has far less costs than the traditional way of acquiring technology – for a start, it removes the range of expenses associated with on premise and IT communications systems. However, to reap the significant cost savings that cloud solutions can bring, businesses need to adopt a cautious approach when choosing a provider and be clear about every upfront and ongoing cost associated with it. Choosing the right service is vital to not only save costs, but also to improve their visibility and predictability.

When a company signs up for a cloud service, the most common contracts are for a set cost per user per month, for a fixed duration. Ideally, any so-called ‘hidden costs’ that might be expected from a service should be included in this rate. Having a fixed manageable cost is a very attractive proposition for CFOs; the budget visibility makes it very easy for companies to predict their monthly IT spend.

The industry’s most successful cloud computing providers are flourishing, not only because of the benefits of their products but because they offer a fixed financial model for organisations to take advantage of. The key is that providers still provide a known fixed price for any bespoke work.

Where many of the cost ‘surprises’ tend to creep in is when a company wants to change its contract, whether it is moving premises, increasing or decreasing users, or expanding and adding more services. The hidden costs come with the integration or development required; in fact, any kind of customisation of the solution.

Some providers are not clear about such costs and these could be ongoing depending on the nature of the solution. True cloud-based applications should allow the user to manage and administer any changes to cut out the never-ending development, integration and adaptation costs. One way of doing this is for vendors to limit the amount of customisations and changes to the system to keep costs down and therefore ensure that the cost passed on to the customer is lower. It makes it easier to maintain multiple customers on the same hosted platform. If they’ve all got different, unique requirements it is inevitably more complex and costly to manage.

Other hidden costs that can fall outside the normal monthly subscription fees include data retrieval and purchasing additional bandwidth to increase internet traffic. Cloud services obviously rely on fast and reliable broadband connectivity. A slow service could have a huge impact on productivity if employees are not able to access applications as quickly as they need to. Likewise, if connectivity is lost, work could come to a standstill.

Both of these scenarios have to be considered carefully when looking at the service offered by an ISP and what they charge for the bandwidth required to use the cloud. Not all clouds are the same and businesses need to examine how a service is delivered, as this can have a great impact on control, which in itself is costly.

As cloud applications and their underlying architectural platforms become more robust, so too will discussions around the ‘true’ costs of the business systems that incorporate them. CIOs and C- level executives involved in the decision to migrate to the cloud need to make sure they fully understand the up front and ongoing costs involved. The fixed monthly or yearly costs may be black and white but the cost for set up, implementation and customisation is still largely a grey area for several providers. Businesses don’t need this additional financial black cloud hanging over them. Every single cost should be fully documented and understood so there are no hidden surprises.

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