The Cloud Explained: Do You Need It?

At its core, the cloud moves data, processing, and software from your local network to a network accessible over the internet. If you want to straight-line your technology costs and avoid the 5-7 year cycle of upgrading your hardware, then the cloud is for you. The cloud can also lower the system requirements and therefore the costs of your desktops and laptops as the bulk of the processing is done on your cloud provider’s network. Software in the cloud also makes your information accessible from anywhere you can open a browser. Another area of advantage for the cloud is implementation and expansion. New users can be added (and sometimes subtracted) at will, often within 24 hours. Seasonal businesses (think Halloween stores) and other pop-up retailers can quickly add seats for their busy times and with the right cloud partner subtract them during their slow times. Under the right conditions, the cloud is an effective solution to many of the needs of small business. So what’s the downside?

The Dark Side Of The Cloud

When you’re on the cloud, your data connection becomes paramount. Your 4Mbps T1 data line was adequate when your data was ten feet away in a server closet and getting 100Mbps through your local network. Now that your entire network is in The Cloud, the amount of bandwidth available to you can be a serious bottleneck.

Speaking of your data line: When your network was on premises and your DSL went down, the most you had to deal with was the loss of email traffic. Now that it’s in the cloud?  You may be unable to take an order, look at customer history, dispatch your fleet, or pay your bills. Now what about security? Microsoft, QuickBooks, and other providers of cloud-based software have the resources to implement layer upon layer of firewalls, encryption, and other security measures unattainable to small businesses that don’t have access to IT support. But is your data more secure? Not necessarily.

Put yourselves, for the moment, in the disgusting, slimy shoes, of a computer hacker. (Probably Vans?) Would you rather spend weeks writing code to break into the network at Joe’s Plumbing and reap the rewards of 5 email addresses and a handful of credit card numbers that will be useless within 24 hours? Or, would you rather spend months hacking into Anthem and get social security numbers and birth dates for 78 million people? Was Microsoft’s network secure when Chinese hackers stole thousands of email credentials in January? How about when Internet Explorer was hacked in April 2014? Data consolidation in the cloud makes your data a portion of a bigger target. (Speaking of bigger targets, the data for 110 million Target customers was compromised in a 2013 hack.)

Who Benefits?

When a new concept gets a marketing blitz like the cloud has recently, I usually ask myself, “Qui bono? Who benefits?” The answer? Software companies. For years the software industry struggled to motivate clients to continue spending after software was purchased. They released new versions in quick succession with spurious benefits. Due to familiarity and costs, many business customers retained their old software.

Enter the age of lower priced bandwidth. In 2002, I paid $700/month for a 4Mbps T1. Today providers like Comcast are selling 50Mbps for $79/month. This deflation in bandwidth pricing made software in the cloud less expensive and gave the software industry its opportunity to capitalize. Cloud software sales reached 28 billion dollars in worldwide revenue in 2012, a 28.4% increase over the previous year. It is expected to grow to 76 Billion dollars by 2017. The software industry found a way to force customer adoption of newer versions and at the same time grabbed a piece of the hardware market formerly outside of their revenue stream.

Long Term Costs And Other Tradeoffs

So how does the cloud compare to on-premises networking for small business? An on-premises server running Exchange, File sharing, and other core software is a capital investment with a service life of 5-7 years. The cloud usually has no upfront investment (which is awesome) but a monthly fee that continues forever (which is not awesome.) In most situations, your return on investment for an on-premises network is 3 years. After 3 years you will have paid just as much for your server as you would in the cloud. Every year you get from your hardware beyond 3 years is a cost savings.

It’s also important when considering a cloud option to explore what happens to your data if you choose to change providers. The cloud provider must present you with your data, but without the software to read it is it in a useable format for both historic review and translation to your new provider.

The Bottom Line: The Cloud vs. Local Servers

Should you move your business to the cloud or invest in an upgraded server? At IMC, our clients ask us this question all the time and the answer depends on what we discover during the close consultation and economic analysis we conduct before implementing either option. Depending on your particular needs, the cloud can be an effective and economical solution, but it’s by no means a magic bullet for every business.

Posted by Craig Becker, Managing Partner at IMC