Cloud services can save you money -- if you're careful

Determining whether using the cloud will pay off is an extremely complicated process.

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Not every transition to the cloud will save that kind of money, but closely examining costs and benefits may reveal that the cloud makes sense even if it doesn't impact the bottom line.

In 2009, when Northern Kentucky University switched from an on-premises installation of Exchange for student email to Microsoft's hosted offering, known then as Live@edu, it didn't save money as a result of the change. But the university gained value because the service allowed for easy integration with smartphones and online storage with SkyDrive. "Even though the costs were flat, it provided more services to students," says Tim Ferguson, CIO for the university.

The hosted service also allowed the university to boost the size of student inboxes. "What we were able to offer to students when we hosted email on-site was minimal at best," he said. "With the move to the cloud-based email, students now have enough email storage to meet their needs."

Ferguson studied what it would have cost to adopt the latest version of Exchange and upgrade storage capacity to match what was offered with the hosted version, and he estimated the additional annual cost would have reached $100,000. Instead, by moving to the hosted system, costs remained flat and the university gained functionality.

Just say no -- even temporarily

Northern Kentucky University is also in the midst of a transition to using virtual desktops rather than physical systems for its computer labs, and it has been turning down vendor offers that just don't make sense economically, hoping that still-to-come products and pricing models will eventually meet its needs.

The university decided to approach the project in "baby steps," by running the virtual desktop software on premises with the idea of transitioning it to a public cloud later, says Ferguson.

About 18 months ago, the university did trials of virtual desktop software from a few vendors, all hosted in-house. The software's performance didn't meet expectations and neither did the price, so the university declined to implement any of the vendors' offerings. "They were surprised. We said, 'Here it is in black and white. You'll cost us more money. The ROI is not good enough. Come back to me when you can solve it,'" Ferguson says.

   Tim Ferguson
When Northern Kentucky University first attempted to move desktop virtualization to the cloud, the ROI wasn't there, says CIO Tim Ferguson. "We [told vendors], 'The ROI isn't good enough. Come back to me when you can solve it,'" he says.

Since then, the university has deployed VMware's View virtual desktop software in-house and is about to start trials running the software on Dell's public cloud, and possibly others. Ferguson expects to have transitioned all of the university's labs to virtual desktops hosted in a public cloud by 2014 or 2015, and he expects that move to cut costs by about 30%.

The university closely tracks costs in order to be able to present current expenditures to vendors. For the virtual desktop project, Ferguson knows how many staff members support the current implementation, what the hardware costs and how much work is involved in doing things like deploying software patches. He also knows when peaks and valleys in usage occur -- and that's important information that could help the university find savings in a move to a public cloud.

This data is extremely important when working with potential vendors, he says. "If I clearly articulate what it costs today, if they can't save me money, why do it?" he says. "If you can't articulate that, it's kind of hard to ask a vendor to do something for you."

One way that Northern Kentucky is making sure cloud services save money is by pushing its vendors to offer true usage-based costing. Many vendors of SaaS offerings that Ferguson has looked at are trying to charge on a per-seat basis. But that pricing model doesn't make sense for a university that has slow times during the summer and holiday breaks. At peak usage, per-seat pricing would save the university money but on average, because of the valleys, that model often ends up costing more than running apps in-house.

That's a particularly important issue for Northern Kentucky's SAP ERP system, which is used for the class registration process. Usage of that system peaks when students are registering for class and then "flatlines," says Ferguson. While his group spends a lot of time managing the on-premises SAP software, "if I have to pay for the peak for an entire year, that's not very interesting," he says.

Also, the SAP system is one that the university can't take risks with because the software has to be totally available when students want to register for class. For that reason, Ferguson does not intend to move that system to the cloud until he's totally confident that it won't fail in that setup. "We're going to accept less risk when it comes to those bread-and-butter systems," he says.

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