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The Hidden Costs of the Cloud

The Hidden Costs of the Cloud

Pretty much every selling point of the cloud boils down to cost. The cloud provides pre-packaged resources, so you don’t have to buy, install, and maintain them yourself. The cloud doesn’t require labor-intensive implementation projects that use up too much time and money. The cloud is scalable to meet your business needs as they continue to evolve. And best of all, it is mostly priced on a pay-per-use basis. Yet, as cloud adoption surges, more and more companies are experiencing the unforeseen pains of runaway costs.

A 2012 Cloud ROI survey conducted by InformationWeek found that of all the companies using or evaluation the cloud, 22% are very concerned and 38% are concerned about the risk of runaway costs. What sparks runaway costs? The report attributes these costs mainly to to user errors and mismanagement: people leaving servers running overnight, for instance. But how are cloud costs tracked to begin with, when most companies treat them as an operational rather than a capital expense? Truth be told, the cloud started out being particularly popular among small businesses, who, despite limited funds, were suddenly able to have access to enterprise-class resources. These small businesses may not have needed extensive cloud cost monitoring practices. But as the cloud is gaining popularity across the entire market, including large enterprises, runaway costs are becoming a real issue.

Learn more about how the cloud is changing the way we do business

The nature of cloud computing is that it’s about sharing resources among a communal pool of users, whether it’s internal to a single company or across various enterprises and communities. As a result, many cloud providers (or cloud solution providers) push features such as free sign-up, free trials, or even free sandbox environments. This is a well-known lure that marketeers have been using for years, particularly in retail. But it presents a real problem for cloud managers. It is hard to control, for instance, who signs up for (free) Amazon Web Services accounts.

The cloud is about speed, being able to provision resources and start projects in no time, rather than going through the traditional budgeting and IT approval process. As a result, many companies are hesitant to put rigorous cost monitoring practices in place for the cloud, since that would eliminate much of the speed factor.

Something else to keep in mind – this is going back to the operational vs capital expense argument earlier – is that many companies are operating on-premise systems that have been around for years. While cloud systems promise to be the next generation, requiring no maintenance and onsite infrastructure, these on-premise systems may have already partially if not fully depreciated. In other words, the company is only paying annual software maintenance on these systems. Total Cost of Ownership for on-premise systems goes down over time, which undermines any cloud ROI.

Click here to learn more about IaaS: what is it and how does it work?

So how are cloud vendors addressing this issue?

The leading cloud services provider, Amazon (through its Amazon Web Services platform), has slowly but surely been dropping its prices, both for usage and customer service. Other cloud vendors like Microsoft have followed suit. But cost is not the real issue – it’s how to control cost.

A number of start-ups has jumped on this opportunity by providing cloud cost monitoring solutions. uptimeCloud tracks AWS usage, Cloud Cruiser tracks general cloud use (not limited to AWS), and there are more vendors out there as well. These companies are providing a valuable service in a budding market. But most of the big players are not to be outdone at their own game. Amazon, for instance, offers a Simple Price Calculator to help figure out monthly usage bills.

Are runaway costs just a growing pain, then? The real cloud as we know it today has only been around for 6 years. As the market matures, surely the issue of runaways costs will have to be properly addressed natively in platforms like AWS. But in order to mature, the market needs to continue to find adopters, which is why InformationWeek’s analysis that 60% of all the companies using or evaluation the cloud are concerned about its hidden costs is staggering. The enduring success of the cloud may depend on the solution to this problem.

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  • Top Expert

Deniz Kuypers

Director, Program Research, Business-Software.com
Program Research, Editor, Expert in ERP, Cloud, Financial Automation
Deniz Kuypers, Director, Program Research at Business-Software.com, worked for years in Sales and Marketing, managing Global 2000 accounts in the area of financial automation. Responsible for lead generation, contract negotiation, and the development and execution of marketing strategies, Deniz was ...