Traditional vendors of IT products and services sometimes argue that systems deployed on-premises are more cost-effective over the long run than their cloud counterparts. They claim that while systems deployed on-premises may have higher acquisition costs, those costs are amortized over time in contrast to software as a service (SaaS) subscription fees, which continue for the life of the system in the form of recurring per-user fees.
Cloud providers, on the other hand, argue that the up-front savings are significant, and that, in any event, the real benefits of SaaS are not in direct cost savings but in the flexibility, agility, and scalability cloud systems bring to the organization. Which side is correct? The answer is not an academic exercise. For organizations to make intelligent decisions regarding cloud systems, it is important to understand the relative costs of SaaS vs. on-premises systems and be able to answer the question, “Does SaaS save money?”
To answer this question, Computer Economics conducted a survey of seven organizations that have fully or largely migrated all of their systems to the cloud. The results are documented in our study, The Economic and Strategic Benefits of Cloud Computing.
The study finds that organizations fully utilizing cloud computing save on average more than 15% in IT spending, whether measured as a percentage of revenue or on a per-user basis, as shown in Figure 2 from the full study. Detailed analysis of respondents’ IT spending mix shows that the savings come not only from a reduction in data center spending but also in IT personnel costs.
As a result of these economic efficiencies, cloud users are able to devote a higher percentage of their IT spending to new initiatives and less to ongoing support. The cost savings, combined with strategic benefits in speed, scalability, and agility, argue in favor of organizations moving aggressively to the cloud.
The seven cloud user organizations that participated in this study include two manufacturing companies, a life sciences organization, a wholesale distributor, a systems integrator, and an online content provider. They have annual revenues between $50 million and $550 million and between 135 and 860 employees.
The full study provides a description of the survey respondents, including their industries, sizes, and cloud system portfolios. The survey respondents use a variety of cloud providers, including Amazon, Autodesk, Box.com, Coupa, Docusign, Insperity (ExpensAble), FinancialForce, Google, Infor, Microsoft Dynamics, NetSuite, Okta, Paylocity, Plex, Rootstock, Salesforce.com, Saleslogix, Ultimate Software, Virtustream, Workday, and yieldEx.
The full study then compares high level IT spending metrics of the cloud respondents against Computer Economics standard industry benchmarks, documents the savings they achieved, analyzes their shift in IT spending to activities with higher business value, and summarizes focus on innovation instead of ongoing support. The report then outlines the strategic benefits of cloud computing beyond cost savings, including feedback from the respondents. We conclude with recommendations for business and IT leaders in developing a strategic roadmap for full migration to the cloud.
This Research Byte is a brief overview of our management advisory on this subject, The Economic and Strategic Benefits of Cloud Computing. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website (click for pricing).