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The seven 'hidden costs' of cloud computing

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BANGALORE, INDIA: Cloud, or more aptly, cloud computing has come a long way since 2006 when Google's Eric Schmidt popularised it for the first time while describing his company's approach to software-as-a-service or SaaS.

Today there is a whole new, or refurbished, industry worth $100 billion that has been built around cloud computing, touted as the next era of IT. On one side the hype around cloud is fading even as more and more enterprises are adopting it, on the other, there are some who have realised that not everything is as rosy as was idolised.

While early adopters such as Netflix and several others tasted success by making the first move to cloud, several others, especially from the enterprise community, ended up being disappointed because they achieved neither cost effectiveness nor less capital expenditure (capex), despite going for an operational expenditure (opex) model. There are several factors which led to such situations. Enterprises tend to oversee a lot of factors or end up making late realisations in terms of what to invest where. Let us see some of such unexpected cost, or hidden costs, which call for additional investment.

1. Opex need not be always the best
The first 'hidden cost' is incurred by believing cloud vendors who claim opex, and not capex, is the right way of doing business and that pay-per-usage is the way to go.

laurent-lachalovumLaurent Lachal, senior analyst, Software - IT Solutions, Ovum, says: "People should be careful when someone claims that capex is wrong and opex is the right way of doing IT budgets. Budgets should be a choice made by chief financial officer of an enterprise and not by any cloud vendor. If a company has lots of cash in hand, it can go for opex. Whereas, if a company buys it based on annual budget, such as those in the public sector, it will be difficult for them to finance opex."

If you have been repeatedly told that cost effectiveness is what cloud is all about, think again, because adoption of cloud from a cost perspective is not going to be cheaper option and there are several aspects that need to be considered so as to to optimise cost and other related aspects in an enterprise while on cloud.

James Staten, principal analyst, Forrester Research notes, "In terms of SaaS, the hidden costs fall into three areas. The first is customization, the more you can use SaaS solution as it was designed the lower your costs. Customizations can quickly lead to development and maintenance costs you did not anticipate. This is the most widely made error by enterprises. It is more cost effective to teach your employees to use the SaaS as it is designed than to try to bend it to your processes. This isn't always possible but should be used as a rule of thumb. The second is integration. You will inevitably integrate SaaS services with in-house applications, data stores and other SaaS services. These integrations must be built, managed and maintained. Best practice is to define a clear integration architecture via as few means as possible."

The third area, according to James, is sprawl because an enterpruse buys SaaS for says 15 employees, but when it opens the same to 1,500 employees, suddenly $99 per user could be more than an in-house solution.

biswajeetgartnerOn the other hand, Biswajeet Mahapatra, research director, from Gartner, opines that buying an application or product than renting one is as good as buying a house than going for the rent mode.

"One can do an upfront investment on storage and network today and own that particular technology. Whereas, in an opex model where you pay a particular amount per month, instead of investing lakhs of rupees upfront in buying that particular technology, they do not own any software, but the data. And, still they have to go through service level agreements (SLAs), tax, interest, and other kind of costs and investment. So, even five years down the line, they do not own anything, which in turn could have resulted in spending more money."

 

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Raj Fri Feb 15 at 02:12 PM

a lots of understanding needs to come for this industry to grow in india

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