The Forester Reasearch released to the public (via TechRepublic.com) a June 23, 2011, white paper titled: “The ROI of Cloud Apps: A Total Econimic Impact(TM) Analysis Uncovers Long-Term Value in Cluse Apps.” Below I will quote and highlight some key conclusions of this report.
Recognize that the report: analyzes the longer-term, five-year cost of ownership and value for cloud applications across four categories: customer relationship management (CRM), enterprise resource planning (ERP), collaboration (including email), and IT service management.”
Major Trend to the Cloud
About, cloud applications, like Salesforce.com (used by nearly 100,000 companies and the tool used by AdvologixPM Practice Management) it writes:
Buyers gravitate to these solutions because of their low upfront costs and fast speed of deployment. Many SaaS solutions also o&er a more user friendly UI than their on-premises competitors due to their more recent introduction or the providers’ ability to rapidly update the UI through automatic, seamless upgrades. For example, salesforce.com has evolved its original eBay-like look-and-feel to today’s more modern Facebook-like design. Our recent budgets survey shows that 51% of firms plan to increase spending on software-as-a-service, while only 9% plan to decrease spend.
Key Benefits
The report list a number of key benefits from implementing Cloud applictions, “mostly around deployment speed, subscription pricing models that align with usage, accessibility, and usability.” The ongoing benefits include:
Faster deployment speed. Cloud applications appeal to business buyers because cloud enables them to roll out solutions much more quickly than with on-premises; many SaaS deployments take only days or weeks. Why so fast? Cloud solutions are ready to go — users need only a login and an Internet connection to get going; there is no need to procure hardware or do testing. Also, implementation is usually quicker, with a lighter, more iterative approach to con”guration versus the heavy upfront customization that o$en characterizes on-premises deployment. #is faster speed also applies to ongoing enhancements. An avid user of cloud applications told us: “We end users don’t want to wait, they want to get the thing done. [We use cloud to] deliver tailored solutions with great appeal to the end user. #e pace of the stu& we deliver is so much quicker.”
Reduced support needs. Cloud applications’ clients o$en can reduce or eliminate IT support; the SaaS provider typically includes a help desk in the subscription, and technical support needs are lower since the provider does all the patching and bug “xing. Additionally, many cloud-based applications were built for business and have simpler, more self-service-oriented user interfaces. For example, many companies have reduced internal IT sta& by moving email to the cloud, since their subscription payment covers all necessary support, infrastructure and archiving costs.
Simpler, more frequent upgrades. Cloud applications o&er seamless, automatic upgrades,typically two to four times per year. #is means that users get access to the latest features and functionality faster than in an on-premises deployment where upgrade cycles o$en take three to 10 years.The more frequent, more incremental upgrades also mean that “rms typically have no consulting costs or change management issues during upgrades. One cloud application client we spoke with who uses NetSuite told us that he “would have had to use consultants to upgrade the on-premises code whenever there was an upgrade. With SaaS, our upgrades happen seamlessly. Were are e%ciencies that we get because we always have the best version of the sofware.”
Beblockquoteer utilization. Pay-as-you-go applications typically yield beblockquoteer adoption for three reasons: 1) “rms pay for what they need, eliminating the shelfware problem typical of on-premises deals, so SaaS providers have a “nancial incentive to encourage deployment and promote use; 2) cloud applications are typically geared toward more of a business audience, meaning they are easierto-use and built to have a familiar (think Facebook-like) look-and-feel; 3) cloud vendors often deliver proactive health check reports that provide statistics about usage, making it easier for companies to identify employees who may need more training or incentive to use the apps.
Key Costs
The report acknowledged that “Cloud applications reduce or even eliminate the high upfront costs for hardware and licenses that firms spend for on-premises projects” and pointed out that they “typically reduce customization costs in favor of lighterweight, point-and-click con”guration and more pre-built “best practices” in the applications”. But it focused on the ongoing subscription costs to rent the software and “often greater costs for multivendor orchestration and ongoing vendor management”. Some key cost included:
Ongoing subscription costs. The primary cost associated with cloud applications is the ongoing rental fee for using the application, o$en per user per month or usage-based. Typical usage metrics include storage (i.e., number of documents) or throughput (i.e., number of transactions processed). #e rent versus own model for cloud means lower upfront costs, but for some deployments these costs will cross over, ultimately becoming more expensive than a licenseplus-maintenance alternative.
Vendor management. Cloud applications require more focus on contracting, SLAs, and performance management. Contracts can be anywhere from month-to-month to five years long; “rms must focus more on contract renewals and negotiations than in on-premises cycles. Some technology solutions are emerging to help with vendor management of cloud vendors, including performance management solutions like HP Cloud Assure and Gomez. However, these technology solutions come with a price tag as well.
Cloud orchestration costs. Many cloud solutions focus on a specific module, such as recruiting or goals management for employees. The cloud landscape does not o&er very many full suite solutions. This means that “firms often face a fragmented, multiple application landscape as they move more and more technology to the cloud. In a recent survey, we found that 26% of cloud subscribers plan to increase the number of cloud vendors they work with over the next year. 3 This multivendor environment means additional costs for areas like integration,
provisioning, end user support, upgrade management, testing, and worklow.
Risk Analysis
The report noted the risk of Cloud applications. Most of their risk calculations are obvious, and not making a change is also a risk. But it pointed to 2 keys risks in an evolving industry:
Vendor viability as the market shakes out. The advent of cloud platforms, such as Azure and Force.com, has lowered the barrier to entry for solutions. Many cloud startups can get going with a blockquote team of coders — with liblockquotele or no startup costs or venture capital. As a result, cloud applications proliferate — but some may have a short life span, either because of failure or acquisition. While acquisition can sometimes be a benefut that adds stability and investment, it can also be a risk that leads to changes in contracts, changes in pricing, or even a shutdown of the acquired technology (as happened with Google’s acquisition of Plannr). Overall, vendor viability risks are high as this early market moves at such a fast pace.
Vendor lock-in. Cloud applications are usually easy to get started. But in the longer term some “rms “nd it can be di%cult — and expensive — to switch vendors. In some cases, users become “hooked” on user-friendly cloud applications. Business users may strongly resist switching from an application they like. Also, most vendor switches will require data migration and implementation costs to move to a new solution (whether cloud, hosted, or on-premises).
