Cloud software is all the rage nowadays, and for good reason. It has gone from a premium priced option for all but the smallest businesses with no IT infrastructure, to the lowest cost option as compared to on-premise installed software for companies of all sizes.
This is due to many factors — a general acceptance of putting data in the cloud, competition among large, efficient and deep-pocketed cloud infrastructure providers, and a shift from cloud business-apps being in the minority and somewhat niche, to becoming the mainstream.
But are we really assessing the true costs of cloud software? License, maintenance, hardware, support, and consulting costs may have been replaced by a lower monthly subscription fee but what about all the hidden costs of cloud vs. on-premise software for businesses? Are we comparing apples to apples here?
The biggest hidden cost of cloud software comes from ignoring the basic principles of selecting the right software for your business. Ask yourself basic questions for cloud-acquisitions just as you would before licensing and installing business software in-house:
“Does it meet my requirements?”; “Is it easy to use and set-up?”; “Is it reliable, robust and secure?”
Ask questions more specific to cloud software: “Can I configure it to meet my changing business needs?” and “Does it bring valuable content and industry practices that I can adopt to drive organization change?”
Cloud applications can sometimes come across as false prophets. The temptation is to grab the first available cool-looking “freemium” software that claims to meet your needs. This can be foolish. The expectation is that the cost of getting it wrong is zero because you never purchased license or hardware. But if the selected cloud system is not suitable, the hidden cost in time and end user frustration might be considerably less as compared to deploying on-premise software, but the cost is still not zero.
What’s important is this: doing a hands-on evaluation by actually using the software is a hundred times smarter than the classic model of making multi-million dollar purchasing decisions on the back of a handful of demos.
So there’s another nail in the coffin for on-premise software (when was the last time you actually installed SAP or Oracle and let your end users actually start using it in-house before making a buy decision?). This is one reason why the cloud will become more dominant over time — the fact that most cloud software is sold through hands-on usage, as opposed to experiencing a passive demo or worse, a Powerpoint presentation.
The difference is between reality and illusion.
Would you buy a car without driving it or the same model and make? (Even in that example, car dealers rarely allow us to drive a demo car nearly far or long enough.)
There are essentially two areas that companies should note when keeping cloud costs in check:
- Service fees – Unlike traditional software where every cost is out of control, this is your only variable … don’t expect to implement complex business processes into cloud software without any outside support, especially if you are changing processes or organization at the same time. But equally, having lower license and hardware costs is not an excuse to write an open check to a consulting firm. In particular, beware of services companies pretend to have a cloud “product,” which they provide for nothing with their services.
- Intangible costs – This could be the big area where costs can get out of control. For example, data migration or organization change management, risk to your business performance during the cut-over, or settling for something that is inappropriate to your business. Don’t be penny-wise and pound-foolish.
Yesterday’s ERP systems were characterized by implementation costs of 2-10x the cost of the licenses, hence the often fractious relationship with implementation partners. And since implementation costs are the hardest to control, especially when system integrators are so experienced and skilled at the art of the change-order, you are almost bound to go significantly over-budget with such systems.
Tomorrow’s cloud systems need to be significantly easier to use, dramatically reducing the need for expensive customization, end user training, and complex data migrations. These systems need to be intuitive, enabling fast adoption, and a rapid pay-back. Not a pay-back for the implementation consultant, but for the businesses that need world-class software in their businesses they can afford.
Have your say: How do you keep cloud providers in check?
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