Cloud Computing is a deployment method where the software is provided as a service rather than owned and hosted on-site. Cloud Computing can reduce a company’s costs by allowing them to avoid the capital investment in hardware and software and the recurring costs of your IT infrastructure. Wikipedia has an excellent discussion of Cloud Computing.

Cloud Computing is a deployment method and deployment is typically only one aspect in the selection of a CRM solution. We use the multi-year total cost of ownership (TCO) to compare on-premise and Cloud applications. Most companies rank usability, security, flexibility and ability to meet a company’s needs as well as the TCO in the selection of a CRM solution.

Our customers who are hosted all tend to be smaller companies with no IT resources. The cost for locating their CRM system elsewhere is less than building a server room with firewalls, routers, servers and Windows domains. Other customers with more than 25 users have elected to host the application themselves. They already have server facilities and IT departments and have found that hosting adds very little to their workload.

Selecting an Enterprise solution can be challenging. There are many aspects to consider – total cost of ownership is only one aspect. Below is more information on the economics of Cloud Computing as found on Wikipedia:

Cloud computing users can avoid capital expenditure (CapEx) on hardware, software, and services when they pay a provider only for what they use. Consumption is usually billed on autility (resources consumed, like electricity) or subscription (time-based, like a newspaper) basis with little or no upfront cost. Other benefits of this time sharing-style approach are low barriers to entry, shared infrastructure and costs, low management overhead, and immediate access to a broad range of applications. In general, users can terminate the contract at any time (thereby avoiding return on investment risk and uncertainty), and the services are often covered by service level agreements (SLAs) with financial penalties.^[15][16]

According to Nicholas Carr, the strategic importance of information technology is diminishing as it becomes standardized and less expensive. He argues that the cloud computing paradigm shift is similar to the displacement of electricity generators by electricity grids early in the 20th century.^[17]

Although companies might be able to save on upfront capital expenditures, they might not save much and might actually pay more for operating expenses. In situations where the capital expense would be relatively small, or where the organization has more flexibility in their capital budget than their operating budget, the cloud model might not make great fiscal sense. Other factors impacting the scale of any potential cost savings include the efficiency of a company’s data center as compared to the cloud vendor’s, the company’s existing operating costs, the level of adoption of cloud computing, and the type of functionality being hosted in the cloud.^[18][19]

This entry was posted on Friday, April 2nd, 2010 at 11:42 am and is filed under Charlies Blog Thoughts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.