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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The calculation

To try to figure out the ROI of any of its prospective cloud projects, Northern Kentucky starts with an ROI calculator and research from Gartner, adapting it for the university's own special needs.

For instance, Ferguson has strict privacy requirements since many cloud services used by the university handle students' personal identifying information, including Social Security numbers. NKU includes privacy in its ROI calculation by subtracting value when considering a vendor that doesn't seem to grasp the university's privacy requirements, he says.

When calculating ROI, the values assigned to various factors, such as privacy, will vary from organization to organization. One business might see security as the most important consideration, while another might place more weight on the speed at which you can add capacity, and others could deem liability to be the highest priority. "That question of value is complicated," Domicity's Brien says.

The value of redundancy is one factor that many organizations struggle with when transitioning to the cloud.

Cloud ROI

There are two types of organizations that don't build in redundancy when using cloud services, says Mark Eisenberg, who formerly worked on the Azure team at Microsoft and now is a director at IT consulting company Fino Consulting. The first are those that are simply unaware of the need for redundancy. They don't know, for instance, that when they move a workload to a cloud-based platform like Amazon Web Services, they must distribute that workload across data centers in multiple regions if they want to avoid the possibility of losing all of their data because of an outage in one particular area. AWS has been good about releasing white papers and other advice on how to properly do this, Eisenberg says.

After an AWS outage about a year and a half ago, the provider wasn't particularly sympathetic toward customers that suffered because they hadn't distributed their workloads across multiple regions, Eisenberg says. The company essentially reminded them that it recommends building in redundancy.

In the second group are organizations that don't bother with redundancy because they make conscious business decisions not to shoulder the cost of building in redundancy. Such a decision might make sense if the systems running on the cloud aren't mission-critical. "It depends on what they stand to lose," Eisenberg says.

The cost of building in redundancy can be daunting. Take data storage. It costs twice as much to fully replicate data. But there are also architectural decisions to consider. Having two data stores separated by a long distance introduces latency when synching the stores. For many applications, that latency might not matter. But for some types of applications it could create problems.

Cost is a factor for compute redundancy too. Businesses that can tolerate the delay involved with spinning up new cloud-based servers -- usually around five minutes -- can wait until a problem occurs before they fire up backup instances, Eisenberg says. Others may run half as many additional servers instead, because they can tolerate some latency with their apps better than they can handle a complete outage for a few minutes.

The scale issues

Architecting scale also is a challenge that comes with cost repercussions. "Just as in the on-premises world where capacity is kind of an art more than a science, it's the same in the cloud," Eisenberg says. "It's easy to say 'I'll just have more capacity than I need,' until you find out the high costs associated with doing that."

SaaS deployments come with their own set of potential cost overruns. SaaS providers often offer their best deals to customers that agree to multiyear contracts. But that leads to vendor lock-in and restricts users from switching to services that might better meet their needs. "So you have this three-year contract. Maybe you outgrow it or maybe you find another app that does a similar thing but better," says Connor Sullivan, an analyst at IDC who follows cloud computing. Businesses in that position likely feel trapped with an app that's not the best fit or they end up "double-dipping" -- signing up for a new service for additional cost, he says.

Businesses also should thoughtfully consider costs over time. It turns out that prices for SaaS apps in general aren't coming down the way that many people once predicted. Historically, the thinking was that with more users of cloud services, economies of scale would reduce costs for all, Sullivan says.

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