At what point does cost savings of cloud trump control of on-premise? It may be lower than I thought (to Lotus/MS peril if you don't have an answer)
Category IBM/Lotus Microsoft
I've seen a couple of articles of late that are making me rethink my mindset of "the cloud isn't enterprise-ready"...
From TMCnet.com: Saving Money with Cloud-Based E-mail
Smaller businesses can save significant amounts of money by replacing a "premises-based" e-mail system with a cloud based alternative, say researchers at the Yankee Group. Analyst Jeffrey Breen says a 75-person firm moving from premises-based e-mail and messaging to a cloud-based platform can save $64,000 in the first year and $207,000 within three years.
And Yankee Group based this on their own internal model based on using Lotus Notes as the internal, on-premise mail system. They modeled a switch to Google Apps Premier Edition.
From InformationWeek: One CIO’s Strategy For Software As A Service
This CIO is embracing SaaS anywhere it’s practical. And where it looks practical to him today is CRM, human resources, and -- probably -- e-mail.Salesforce (NYSE: CRM).com is implemented at the company, Workday HR is just at the starting phase, and e-mail is a question mark. Is Google (NSDQ: GOOG) up to the task? The cost savings are there, and all employees already are used to accessing e-mail via the Web using Lotus Domino. But is Google’s basic functionality today just too basic? Where is its road map headed? He’s visiting Google this month to find out. The big vendors (Microsoft and Lotus) offer online options, but the costs savings don’t look nearly as compelling to him.
While you can't draw generalized conclusions from a single CIO discussion and a single analyst report, I'm becoming more aware (mind share?) of the whole "cloud vs. on-premise" debate. It seems like we (the on-premise crowd) tend to present the argument for control of data and 24/7 availability (or at least the option to have it), while the cloudies talk about major scalability, no infrastructure cost, and per-user pricing. I'm still of the opinion that control of data is a *very* good reason to not ship your data off to a 3rd party, but that's being challenged by the "at what cost" arguments.
In a perfect world with infinite resources, you keep your email and data in-house, and maintain 100% control. But if a *small* company (read: SMB) can save tens of thousands of dollars having someone else manage it, what is that control realistically worth? And no lofty "it's worth everything" statements... I'm talking hard dollars that may be the difference between staying in business, turning a profit, or declaring bankruptcy. And this small business scenario doesn't even begin to address the probable hundreds of thousands of dollars a GSK will save by going to the cloud.
Yes, Domino has an application development platform. But is a small business going to spend money to have custom apps developed if 75% of what they want can be purchased off the shelf or provided online? Yes, Foundations is a great option for a plug-and-play server. But is Joe Dentist going to be more comfortable with a box he doesn't know much about, or a Google URL that he uses on a regular basis anyway?
The cloud is not the answer to every problem. But much like low-cost countries have taken over entire industries, the cloud concept is following the same model. Start with a low-cost model, basic services, and attack the very low-margin market. The high-end players don't care. Once you have competency there, start carving into the mid-market range. The high-end players will notice, but will still be set on defending the big high-margin accounts. Once the battle for the mid-market is lost, then the high-end players notice and start to defend their remaining turf with a vengence. But by then, the "low-cost" providers know your business as well as you do, they've squeezed out extra cost, they're competent players, and they can offer your level of service for a fraction of the cost. At that point, it's only a matter of time before you are bought or go out of business.
A number of people far smarter than I have been stating for some time that IBM/Lotus's main competitor isn't Microsoft, it's Google. I now understand that much better. And while I think Microsoft is far too involved in too many things to have the focus it needs, it *has* responded in the cloud world with offerings that are getting noticed and purchased. In my view, Microsoft is far better prepared to fight Google than Lotus is, and I think Google is starting to carve away at that mid-market range...
I've seen a couple of articles of late that are making me rethink my mindset of "the cloud isn't enterprise-ready"...
From TMCnet.com: Saving Money with Cloud-Based E-mail
Smaller businesses can save significant amounts of money by replacing a "premises-based" e-mail system with a cloud based alternative, say researchers at the Yankee Group. Analyst Jeffrey Breen says a 75-person firm moving from premises-based e-mail and messaging to a cloud-based platform can save $64,000 in the first year and $207,000 within three years.
And Yankee Group based this on their own internal model based on using Lotus Notes as the internal, on-premise mail system. They modeled a switch to Google Apps Premier Edition.
From InformationWeek: One CIO’s Strategy For Software As A Service
This CIO is embracing SaaS anywhere it’s practical. And where it looks practical to him today is CRM, human resources, and -- probably -- e-mail.Salesforce (NYSE: CRM).com is implemented at the company, Workday HR is just at the starting phase, and e-mail is a question mark. Is Google (NSDQ: GOOG) up to the task? The cost savings are there, and all employees already are used to accessing e-mail via the Web using Lotus Domino. But is Google’s basic functionality today just too basic? Where is its road map headed? He’s visiting Google this month to find out. The big vendors (Microsoft and Lotus) offer online options, but the costs savings don’t look nearly as compelling to him.
While you can't draw generalized conclusions from a single CIO discussion and a single analyst report, I'm becoming more aware (mind share?) of the whole "cloud vs. on-premise" debate. It seems like we (the on-premise crowd) tend to present the argument for control of data and 24/7 availability (or at least the option to have it), while the cloudies talk about major scalability, no infrastructure cost, and per-user pricing. I'm still of the opinion that control of data is a *very* good reason to not ship your data off to a 3rd party, but that's being challenged by the "at what cost" arguments.
In a perfect world with infinite resources, you keep your email and data in-house, and maintain 100% control. But if a *small* company (read: SMB) can save tens of thousands of dollars having someone else manage it, what is that control realistically worth? And no lofty "it's worth everything" statements... I'm talking hard dollars that may be the difference between staying in business, turning a profit, or declaring bankruptcy. And this small business scenario doesn't even begin to address the probable hundreds of thousands of dollars a GSK will save by going to the cloud.
Yes, Domino has an application development platform. But is a small business going to spend money to have custom apps developed if 75% of what they want can be purchased off the shelf or provided online? Yes, Foundations is a great option for a plug-and-play server. But is Joe Dentist going to be more comfortable with a box he doesn't know much about, or a Google URL that he uses on a regular basis anyway?
The cloud is not the answer to every problem. But much like low-cost countries have taken over entire industries, the cloud concept is following the same model. Start with a low-cost model, basic services, and attack the very low-margin market. The high-end players don't care. Once you have competency there, start carving into the mid-market range. The high-end players will notice, but will still be set on defending the big high-margin accounts. Once the battle for the mid-market is lost, then the high-end players notice and start to defend their remaining turf with a vengence. But by then, the "low-cost" providers know your business as well as you do, they've squeezed out extra cost, they're competent players, and they can offer your level of service for a fraction of the cost. At that point, it's only a matter of time before you are bought or go out of business.
A number of people far smarter than I have been stating for some time that IBM/Lotus's main competitor isn't Microsoft, it's Google. I now understand that much better. And while I think Microsoft is far too involved in too many things to have the focus it needs, it *has* responded in the cloud world with offerings that are getting noticed and purchased. In my view, Microsoft is far better prepared to fight Google than Lotus is, and I think Google is starting to carve away at that mid-market range...
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Comments
Posted by Eric Mack At 17:14:40 On 04/03/2009 | - Website - |
Of course, email isn't core to a dentist business, so maybe that is not a good comparison. I should imagine that maybe the CRM/Invoice tracking would be more critical to Joe than email. SAS might be great right now but what happens when he want to switch providers when better or more cost effective competitors surface ? How easily will that be ? and is that the 'surprise' cost ?
Posted by Tony Palmer At 17:33:34 On 04/03/2009 | - Website - |
You must separate email from workflow and treat it like an app process. It can still work and be done but not always the way it was originally designed.
That said, while I tend to focus on Microsoft more than Google in my blog postings the reason is still just like you pointed out.
A SMALL company benefits from the web, no question. But if you take that $5/user and multiple it out for a 10,000 person company that's $50K a month BEFORE anything else(like admins, Google is NOT going to do your admin for you) or if you want more space or backups or the cost gets higher as more pieces(clustering or alternative options when Google fails, like last week) get added to the cost. So at $600K+ a year you get what...just email. Integration of your calendar is via a 3rd party conduit.
Licensing costs are a one time cost amortized over a few years depending on size/cost/tax law. Support/maintenance fees after the first year can be dropped in favor of a BP who can work with IBM on your problems and is MUCH cheaper usually.
So what do you really save? Power in the data center? a few servers?
You will now have to increase bandwidth to EVERY office that until now "got along". So more costs.
I can go on and I am sure others have bigger lists why this doesn't make sense yet. And don't forget your costs only RISE as you stay on the gravy train with your hosted services.
Security has some place here, as does privacy guidelines perhaps and just "fear" that MY data is out there somewhere.
Google or IBM or Microsoft has a much better security level(for their own internals, although perhaps not always at customers) and awareness than 90% of the companies out there who just think they do or presume they do.
You are correct that IBM and Microsoft need to compete better at the lower end but this will not end up like NT vs. Novell.
Posted by Keith Brooks At 17:50:10 On 04/03/2009 | - Website - |
A 75 people company should normally be able to run their business with not more than 2 to 3 IT people max. Even one would be enough but that leaves the risk to be too dependant on this person.
Assuming that no company wants to rely on one person that leaves the cost savings to infrastructure and licensing. If you are already good at that you don't save this amount of money. And to be fair. Google for example often is using cheap desktop hardware to run their business. It works for them and seems to be very cost effective. It looks pretty because the cloud hides from the customer. Many 75 people companies could probably save cost if they choose cheaper hardware and use software tools to reach their service level. Only if you are able to put everything into the cloud you will save big money. Many companies have not reached this point yet.
Posted by Henning Heinz At 01:13:11 On 05/03/2009 | - Website - |