While lower cost seems to be the main argument of many cloud solutions resellers, it is false to pretend that the cloud always leads to savings. The cloud indeed helps in reducing capital expenditures, replacing them by operating expenses (CAPEX vs. OPEX), but it does not necessarily reduce expenses in IT. At the end of the year, such a choice may allow the organization to report more expenses and reduce its capital expenditures, but that does not automatically translate into a reduction of expenses.
Another impact on capital comes from switching from a pay now use later model to a usage-based model. By acquiring your IT infrastructure for the next 3 to 5 years, you need to make a significant investment to make sure you can support future growth. So there’s an substantial upfront cost as well as a monthly-based cost for support. If you multiply this cost by the interest you could generate by investing these sums instead, you end up having less money coming in. Worse still, if you do not have the fnuds needed to make that investment, your need to calculate the financing costs you incur.
If you compare the upfront cost of acquiring an on-premise server to 36 months of cloud service, you may find that the cloud is expensive. However, when you consider the costs of owning your own server, you also need to add these direct and indirect costs:
- Floor space used by the server
- Network and security
- Usage of the rack it is installed in
- Administration (billing, payments, etc.)
- Deployment and maintenance costs (firmware updates, and others)
So in the end, while switching to the cloud (or not) may seem like a no-brainer, there are many other factors to consider. Make sure you get the support of your CFO and you get the right information before you start crunching numbers.