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News & Press: Colorado Technology Industry

As we exit a recession, is the cloud right for you?

Monday, January 17, 2011   (0 Comments)
Posted by: Nikki Mill
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As we exit a recession, is the cloud right for you?
Leaner and meaner doesn’t mean you can’t grow

By Carolyn Duffy

As the economy continues to rebuild, enterprises are looking to rebuild. Given the choice between growing and being left by the wayside, the choice must be growth, and growth in any modern company means updating your technology.

The Gartner technology research group recently identified its top 10 trends for 2010 and sitting on top of the list was cloud computing. Cloud computing is of such high interest to business owners because, among other things, it can increase efficiency and allow for growth without the traditional major expense of ramping up the IT department.

While cloud computing might not be for everyone, it is clearly the choice of many. One recent Gartner study showed that spending on cloud computing would represent 10 percent of the external service provider market. One form of cloud computing, Software-as-a-Service ("SaaS”), will grow from $12 billion to $20 billion from 2009 to 2012, according to a forecast by the technology research firm IDC. Many of the big players in the industry – Microsoft, Oracle and SAP– are getting into it and believe it is the future of IT.  Other companies, such as SalesForce.com and NetSuite, have provided leadership in this industry over the years.

You might hear a lot of uses for the term, but cloud computing is essentially any computing done over the Internet using a browser.  It usually involves shared servers that provide resources, software, and data to computers and other devices on demand.

If you are a business owner or executive who is curious about cloud computing, here are several reasons to consider it, especially as we exit this last recession
1) Lower cost. Initially, cloud computing requires less investment because you don’t have to buy large servers and software. In addition, the traditional implementation and programming costs are lower because most cloud systems are fully integrated. It all leads to less need for borrowing during times of tight credit.  A study by Pepperdine University showed that while 79 percent of businesses surveyed predicted opportunity for growth, less than 5 percent of banks plan to loosen their lending standards during the next year. 

Costs are also lower in terms of ongoing total cost of ownership. Hurtwitz & Associates, in a study sponsored by cloud computing firm NetSuite, compared NetSuite’s solution to that of implementing Microsoft Dynamics GP/CRM computing over four years for three different levels of users in a company. Two smaller user groups cost about 50 percent less than the on-site system and a 200-user scenario cost 35 percent less.

Here are some of the reasons for ongoing savings. In the cloud, system updates are regularly scheduled and requires less cost than an on-premise system. Cloud computing, because it doesn’t require large clean rooms, cooling systems and dedicated T-1 lines, is more energy efficient and saves on office space. You also don’t need the associated technical staff to keep your computers running. A Gartner study showed that 63 percent of the typical IT budget is consumed by administration and support. Operating costs of the cloud provider are lower because they can be spread across all customers and included in the monthly licensing fee. Finally, because cloud computing is licensed and represents a steady expenditure of a lesser amount of cash, the cost of capital is less without the costs associated with large capital loans.

The cost argument over the cloud versus on-premise computing rages on. I counsel clients that if you operate your on-premise system for a decade or so, the overall costs can be about the same. The problem is that most on-premise systems needed to be upgraded every three or five years. So the cloud wins the cost battle on a practical level.

2) Scalability. Cloud computing is scalable. In other words, as your company grows, your computer systems can grow with you without massive reinvestment. Cloud software providers are continuously upgrading their products. As the number of users in your company grows, you will pay more in licensing fees, but you won’t be limited by number of users. 

Because the cloud is available anywhere at any time, your company can also grow in different locations without having to create a new data center or on-premise server system.  If your company goes global, cloud providers can make multi-currency and language systems available to you.

3) Efficiency. Better information leads to higher efficiency. Cloud computing increases the availability and accessibility of both operational and financial information. On a browser-based cloud system, information is continuously updated and accessible 24-7 from anywhere there’s a computer or PDA. There is no need for the IT staff to generate multiple reports that must be distributed throughout the company.  And because there is no on-site system to maintain, the IT staff can concentrate on technical improvements rather than maintenance. Finally, cloud computing, by using an SAS70 Type II report, transfers the requirement for risk mitigation to the cloud provider, who is responsible for internal controls and security.

4) Cloud Positions Your Company for the Upturn.  Operationally, you can better equip your sales, management and front office teams with little upfront capital by using powerful tools from such vendors as Salesforce.com.  Real-time information about your company and your customers also helps you make more nimble decisions as the upturn progresses. And as you look to the future, budgeting and forecasting tools can replace spreadsheets and be available to multiple users concurrently.

These are all reasons to look into cloud computing, but who wouldn’t it serve well? Some companies believe that their processes offer them a competitive edge. With cloud computing, there’s typically one code set with standard processes. Many providers, however, provide tools with which to customize the processing. If you think your technology is unique, cloud computing may not be the way to go.

If your company has just spent $10 million for a large on-premise system, you might not be too crazy about converting to a cloud system. If it isn’t broken, why fix it? An example of that would be Dell’s just-in-time system where you could tailor your own computer and it will be made and shipped to you in short order.

Cloud computing is just getting started. You’ll be hearing a lot more about it. For small and medium-sized companies, it’s a way to improve efficiency and get a head start on the economic recovery without returning to the spendy pre-recession ways.

About the author:
Carolyn Duffy, CPA, is a director of business advisory services for Hein & Associates, a full-service accounting and advisory firm with offices in Denver, Houston, Dallas, and Southern California. She specializes in cloud computing software implementation, as well as designing and implementing methodologies for SOX 404 and IT service lines. Carolyn can be reached at cduffy@heincpa.com or 303-298-9600.

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