#6 Control Your Cost with Cloud Technologies
These days, it would be difficult to claim that virtualization doesn’t help contain and control your IT budget. While the “cloud” is still ambiguous in many ways, one specific aspect is relatively easy to understand: use one large computer pretending to be many smaller virtual computers to take advantage of economies of scale. Now, no two cloud journeys will be exactly the same – each organization has its own specific collection of key focal points- but a lot of them will rhyme. For many businesses, going to the cloud will be a process (some easier, some more complex) of virtualizing their existing infrastructure and applications to one or more off-site servers, typically managed by a service provider. This can include data stores, line-of-business applications, production environments, communications platforms, and more. Such a change often brings significant improvements in fault tolerance, accessibility, and scalability.
Many businesses recognize the potential benefits, and are technologically ready to make the migration, but they will shy away from the upside because of the pricing model: cloud services are almost always subscription based. Those with an eye on the dollars quickly point out that, given an equal and appropriate timeline, an indefinite monthly subscription fee will mathematically always cost more than a single one-time purchase for hardware. While such a direct comparison is undeniable, it is an oversimplification of the issue. It avoids addressing the advantages of a subscription model while overlooking the hindrances ownership. If you’re at the point of cloud strategy development where you’re beginning to consider the price/cost models of subscription versus ownership, then make sure you are including the following four considerations to ensure you are looking at all of the factors of cost.
In regards to total cost of ownership, increased fault tolerance is the most impacting, but it is by most accounts only the second most tangible benefit of a cloud-based service. By “tangible,” we mean “easily recognized by any and all users.” Resiliency is, after all, one of the central pillars of cloud services. Cloud service providers all take advantage of server clusters, high-speed replication, and mesh “fabrics” to ensure that any individual failure never impacts your ability to use the services. Since this is their whole reason for existing, they can afford to invest in 50, 100, 1,000 servers to ensure the maximum possible up-time, while most businesses supporting their own servers typically don’t scale beyond a primary or production server and a backup server (which, by the way, is typically for replication only, and can take hours or days to restore). That being the basis for the claim of increased fault tolerance, the reason this is a tangible benefit is because there is a very real and measurable cost for every minute of interruption or lost productivity your organization bears. Sum up the monthly payroll of all affected employees, the monthly cost of rent and electricity, and so on. Determine how much time is being lost, and you’ll quickly be able to see the hard cost of each interruption. There is also the consideration of “lost business” from an outage or failure, but that can be difficult for a business to quantify, whereas it’s usually extremely easy for any business to determine how much payroll and rent was spent during an outage. Therefore, when comparing the one-time cost of ownership to the monthly subscription model, you’ll need to ensure that you add the annualized cost of lost payroll, rent, and utility fees due to premise-system failures to the one-time cost for the number of years you are evaluating.
Not as readily tangible a benefit, but still heavily impacting the cost of a cloud-based service is the freedom of liability. In particular, this is specifically referencing to the liability of maintaining the hardware and software, and ties heavily into the benefit of resiliency and up-time. Much like the difference between renting and buying a house, there are many responsibilities that ownership of technology confers that drive up the cost of maintaining your own solution. The most obvious and frequently dealt with is replacement of failed hardware. If you own your phone system, and someone’s desk phone fails, you buy a new desk phone (particularly once you’re outside of any warranty periods). If you’re maintaining your own servers and one of your drives fails, you have to pay for a replacement to be shipped and you’re operating at reduced capacity until it arrives. You may have opted to spend the money in advance and have an extra drive on standby for insurance, but that only affects the time to restoration, and only as long as you actually have the parts that failed. Whether you bought the replacement component in advance as insurance or immediately after in response, it equally increases your cost of ownership of the system. Ownership also puts the onus of updating firmware and software on you. Your team now has to coordinate periods of interruption for patch rollouts (AKA: risk!). A cloud service simply disconnects the server cluster that needs maintenance, redirecting traffic to other nearby clusters, distributed for balance. And, of course, as more critical components begin to fail, the impact of failure begins to grow, as calculated above. Therefore, when comparing the one-time cost of ownership to the monthly subscription model, you’ll also need to ensure that you include a budget for hardware replacement and patch administration time. If you are paying a monthly fee for a support agreement on your equipment, that also needs to be included in the comparison.
The first most tangible benefit, though third most impacting to cost, is that of accessibility. Again, because a cloud service providers entire existence is, by definition, to provide cloud services, they can afford to spend the time and money to build relationships and presences with innumerable data centers and internet exchange points across the world. This means that regardless of where you are, whether at the office, at home, or on vacation, you’ll have access to the most direct route to your data possible- i.e. lowest latency, best user experience. Maintaining your own solution requires you direct all traffic back to “home base,” a behavior that not only creates a wide range of experiences based on how far you might be from the core server, but also requires the location to maintain enough bandwidth to handle hair-pinning remote workers alongside the on-site workers. You could, if you so desired, put your self-owned solution in a nearby data center, and pay them to provide hands-on maintenance and support, but, to the point of this article, that is the essential idea behind private cloud solutions, and they will require a monthly or annual subscription fee. Therefore, when comparing the one-time cost of ownership to the monthly subscription model, you’ll need to include the cost of increased bandwidth for remote workers (including people who take work home evening and weekends), and account for lost productivity of remote workers that are further away from the office.
The last point of comparison requires the longest timeline to quantify, but often times allows a business to completely transform the way they account for the cost of a particular technology. This is the topic of scalability. Quite simply, the other central pillar of cloud services is the ability to add and remove services on an as-needed basis. Let that soak in for a moment: Expansion and contraction. Once you purchase ownership of a technology, it becomes the responsibility of you and your company to amortize that expense out over a long enough period of time to make it an acceptable expense. If you reach the capacity of the system and still need more, then you need to make another purchase, usually of significant size, and begin the amortization process again. For many businesses, dramatic and difficult-to-predict spikes in capital expense are unfavorable. For many organizations, the predictable and linear nature of paying a fixed “per-unit” operational expense is much easier to digest and plan with. Furthermore, once you’ve bought it, it’s yours and you’re stuck with it. If two years down the line you end up reducing your consumption to 50% of what you bought, then you’re stuck with twice as much technology as you need and all of the corresponding buyer’s remorse. Conversely, with a cloud solution, if you find you have purchased more than you’re using, you simply reduce the quantities you are ordering, and return to focusing on your real priorities. Many businesses take advantage of this and only pay for services when they’re actually using them, even going so far as to turn their cloud services on and off several times throughout any given day. With this flexibility, it is no longer necessary to find ways to leverage technology you bought until you’ve waited long enough to lower the average of what it cost divided by the time you’ve had it. Therefore, when comparing the one-time cost of ownership to the monthly subscription model, you’ll need to include the cost of expansions, the cost gaining approval for CAPEX vs. approval for OPEX, the cost of risk carried while amortizing, and the cost of risk carried by the unretractable nature of ownership.
In review of these points, we quickly see that there are many costs of ownership that are not only often overlooked when comparing the one-time purchase price to a monthly subscription model, but actually still end up being recurring expenses. When these factors are properly accounted for, what was thought to be a one-time technology purchase is actually a combination of large capital expenditures with a handful of monthly operational expenses and an unnecessary amount of risk. But, of course, the exact amount of risk, and the exact one-time and monthly costs, can take a lot of time and effort to pin down. If you’re looking to quantify the cost of moving to a cloud technology service over continuing to purchase self-managed and/or premise-based solutions, The Comtel Group can help.
With over 30 years of technology thought leadership, Comtel is a privately held professional and managed services firm that invented the industry disrupting “Procurement Exchange Management” or PXM. Not only is PXM a new technology service category altogether, but it provides the most powerful procurement proposition possible. Our offer is simple: eliminate the salespeople who drive little value and have Comtel procure your service provider contracts, and, in exchange, you’ll get to recapture those sales commission dollars from the service providers. You can use those dollars to fund our professional services and to tame those 800lb gorillas for you, or you keep the difference and put it back in your IT budget. Either way, the focus stays on helping you achieve your mission.
