The Cloud – Will I save money?

The short answer to this question is almost definitely not. The only cases I have seen a savings is in very small organizations or single entities (1-3 systems). This is because, in most cases, the capital expense required for a server, back office software, network equipment, backup, etc. is just not affordable or practical for these small guys.

So why would a hosted provider even sell it based on a return on investment (ROI) value proposition? Well because they have no choice. Once a provider makes the initial investments and starts to offer cloud (hosted) services they are forced to push every and all clients to it regardless of whether is it what is the best option or not. They really have no option, it is sink or swim and selling the capacity in their cloud environment is critical to the success and profitability of the organization. Of course as time goes the investment required to get started will commoditize but the reality is that it already has. Before these small providers put the last server in they are already dead. Google, Amazon, Microsoft, Rack Space… these guys will kill them. Their cost is so low because they have already sold the capacity and like all technology life cycles it will be a commodity probably in just a few years. Some will survive and some might find a niche but most will parish.

Of course I don’t have any concrete information supporting my predictions but there is a history of this happening. Remember when you had to pay $5 per month per email account? Google, Yahoo and alike offer it free now. I even remember selling Netscape web browser for $100! Imagine purchasing your web browser or email account today, not going to happen. How about when the local computer store, ours included, would custom build a PC for your home or business? There is an interesting book called “Inside the Tornado” by Geoffrey Moore that illustrates the predictable life cycle of technology.  Time and time again the theory that all technology, in time, will commoditize. The average time for technology to commoditize is 3 to 5 years.

Going back to answering some of my questions in my post “The Cloud – What are your rights?” I ask the question, What if the provider goes out of business?, well since most business don’t make it past year one and 98% or more never get past year five this is a RED FLAG WARNING! If you think they will call you to tell you that they are folding their business I wouldn’t bet on it. Our recommendation… keep your digital assets in your possession unless it is just not affordable.


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