The seven ‘hidden costs’ of cloud computing

By : |February 13, 2013 0

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 rosy as was supposed to be on cloud.

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 or suffered 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.


The first ‘hidden cost’ is incurred by believing cloud vendors who claim opex, and not capex, is the right way of doing business.

Laurent 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.”

Adoption of cloud from a cost perspective will not be a cheaper option.

Biswajeet Mahapatra, research director, Gartner, says: “It is as good as buying a house than going for rent mode. Similarly, 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.”

Biswajeet adds that in a high interest country like India, opex investment will be more suitable as it frees up capital, which in turn can be utilised for other projects.

The second ‘hidden cost’ could come in guise of the misconception that cloud is first and foremost a technology, rather than a service, and enterprises thus tend to ignore the investment in people and processes to make them cloud ready.

“Unfortunately most of the enterprises, both small and large, who are looking at cloud categorize most of the expenditures as cloud technology cost,” Biswajeet adds.

Cloud players have built the aura around cloud so that people see it only as a technology with regard to opex and capex. Technology is just one of the aspects and out of Gartner’s 10 parameters of cloud challenges, it is just the eighth one.

“Cloud is actually a service and not a technology. Cloud has other aspects like people and process. So when you are looking from a service’ perspective, irrespective of whether it is a private, public, hybrid or multiple cloud, process is one of the most important thing which has to be in place.”

The robustness and maturity of processes will decide how beneficial or viable cloud services can be to an enterprise. However, in the current scenario, robustness of enterprise processes are very low and in a bid to improve it, you tend to spend more.

“In a scale of one to five, the maturity of processes in Indian enterprises is below two and Gartner believes that it should be at least three for cloud to be beneficial. So a lot of money goes in streamlining processes, implementing best practices, getting right certification, implementing basic stuff such as service portfolio or management or catalogue. And, it may also involve training people in the new processes, getting them certified, maintaining a new process management tool,” Biswajeet adds.

And, in order to re-train them and fit them into cloud style of working, it calls for additional sum of money.

“As we move to a cloud-based environment, roles and responsibilities of people change. It may not anymore have the traditional roles like a hardware management expert, or power and cooling management expert, or Java or .Net expert. Instead, it will all be handled by ‘T-Shirt employee’, who will do multiple things, including vendor management, SLA management, contract negotiation. So they need to be given additional training,” Biswajeet adds.

The third ‘hidden cost’ could come from the lack of transparency in IT budget allocation and understanding as to what enterprises have and what more they seek from cloud.

“In public cloud you do not have any upfront investment, whereas in private clouds you have. What you should understand is to what extent will the new product on cloud be more cost effective than what you currently have. The problem is that many companies do not have good understanding of exactly what costs what, and consumes what sort of resources in the company. Companies have annualised budget, but when it comes to allocation – in terms of which applications are costly, which are the businesses lines that rely a lot on IT resources – turns out be difficult. There is no transparency when it comes to cost allocation in IT resources,” Laurent notes.

Cloud is all about scale, availability, however, there is a hidden element in it, which is downtime and that could be your fourth hidden cost:

Michela Menting, senior analyst, Cyber Security, ABI Research, says: When looking at cloud solutions, there are a few factors that decision makers need to think about. Some of the big ones really concern availability (uptime) and security. Availability really refers to how much uptime the cloud provider will guarantee. Generally, top providers will guarantee almost 99 per cent availability, with 1% of downtime a year. This downtime can be due to external factors such as acts of God (natural disasters, power cuts). Decision makers need to assess the cost to their business of a potential downtime. Even the biggest players, such as Amazon Cloud Services, have suffered outages in the past, so this is something that needs to be seriously considered.”

Journey to cloud is not a one-day affair. It needs a lot of preparations in terms of bandwidth, network capability, products, so that an enterprise is ready to do its job on cloud. And, this upfront investment is something that you had not planned for at the onset of the journey. This brings us to the fifth ‘hidden cost’.

“It is not very easy when you say you are going from an in-house solution to a cloud based solution. If you are going to move to a cloud-based solution you may have to do a lot of investments that you may call the upfront investments. You may have to increase bandwidth, improve networking capabilities, standardise certain technologies, platforms, buy products such as cloud platform or cloud management solutions, integrate several new systems that may not be so easy to integrate, work with service providers or system integrators who will negotiate on your behalf with multiple cloud. So there is a lot of cost involved in it,” Biswajeet adds.

Cloud vendors harp a lot on how secure data will be on cloud as against a traditional environment. but then if you are not aware of the ‘contextual meanings of security you you can end up shelling extra bucks and that is our sixth hidden cost.

“Security is another big concern. This is especially true in countries where data protection legislation needs to meet certain criteria. For example in Europe, data protection requires that personal and sensitive data be stored in a highly-secure manner. Other countries typically have less stringent regulatory requirements, so European decision makers need to be sure that they don’t fall foul of European compliance by storing data abroad. If a breach occurs, or compliance is not met, companies could face serious fines. In the UK for example, both the Financial Services Authority and the Information Commissioners Office can levy substantial fines for data protection breach. This could cost decision makers a lot of money,” adds Michela.

The mode of payment for any cloud service is pay-as-you-go through credit card and that is where the seventh ‘hidden cost’ lies.

“In public cloud setting, the hidden cost are more related to the fact that usually CIOs are not aware how much of public cloud is being used, because they use company credit cards, which is also used by their developers who develop application on cloud. So, at the end of the day when you combine all these expenditures, the amount is quite significant. CIOs do not realise how much will cloud resources cost because cost structure of these resources is quite complex. In cloud, computing, processing, storage, network bandwidth, all of these can add up as expenditure,” Laurent notes

The eighth hidden cost come out of the myth that public cloud is cheap.

“People tend to believe so because most of the time, users are not good at math and the rest of the time they do not maximise the use of cloud resources. In certain cases they create a server on a public cloud and when they are done with, instead of deleting it just leave it as it is and thus keep paying for it even though they are no longer using it. Sometimes, they use a server which is too big for what they are doing,” Laurent notes.

Today anyone and everyone is a cloud provider. So it is all the more important to keep vigil and not to fall into the traps of some bogus vendor. This is our last and ninth ‘hidden cost’.

“It is important to consider the viability of a certain provider. Megaupload is a good example. Although not strictly speaking a cloud provider, it did provide cyber locker services. It’s spectacular shutdown by law enforcement last year put many small businesses in trouble. Unable to access their files, many lost business sales and revenue. The cost of having to go to court and get the data released is heavy, and may not always be successful,” adds Michela.

So as we saw there are a lots of ways in which CIOs can be taken unawares when it comes to cloud and its associated cost. However, that does not mean that cloud is not good, just keep in the mind that there is lot more to it, than just what vendors try to project, and what meets the eyes or ears.

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