In 2010 Microsoft announced it was "all in" on the cloud. Yet five years late the annual run rate of Microsoft's cloud business is roughly $5.5 billion, a small chunk of its annual overall run rate of over $100 billion.
Is IT just old-fashioned, resisting the inexorable march of the cloud, trying to protect its jobs and the status quo? Not really. It turns out there are serious technical and business reasons to forge ahead with on-premises software for the most critical applications – and this is true for shops large, small, and in-between.
Cloud vendors never cease in extolling the economic virtues of their approach. What they don't tell you is there are often hidden charges, that costs rise with usage and data transport, and that you are locked in. If the rates go up, you may have great difficulty moving to another solution.
These hidden costs are very real, or so shows a study by Research in Action, in which 79% of the 486 IT respondents are worried about hidden cloud costs.
"The complexity of these services has increased dramatically over time. This presents an increased risk to companies that leverage these services as their business-critical applications become more dependent on the cloud. Since many of these services, such as e-commerce platforms, are externally focused, any disruption becomes very visible to customers. These disruptions can therefore cause customer churn, reputational damage, and ultimately loss of revenue," Research in Action argues.
You also get hurt by vendor lock-in. "Buyers do not own the rights to the code in most public cloud models. Buyers pay for the right to access functionality and use the intellectual property, but at the full mercy of the cloud vendor. Should the vendor decide to take a different product direction or find itself bankrupt, users remain at the vendor's mercy," says Constellation Research.
Some users are learning this lesson the hard way. Last year, nearly a third of SaaS customers moved back to on-premises computing, Gartner analyst David Cappuccio maintains.
The cloud is ideal for many applications. Salesforce.com is a godsend for many, Web mail is ideal for consumers, and the cloud is a great way to buy music. Other apps you depend on are still arguably better served in-house where IT has total control and ownership.
The cost of on-premises software may not be going down, but the price of the computing and storage hardware that support them is getting better all the time. This is thanks to Moore's Law, which has proven accurate ever since postulated in 1965. According to Intel genius Gordon Moore, by shrinking the circuitry, processors will double in power every 18 months. This has led to two glorious realities: the price of computing hardware keeps coming down, or the power of what you get for the same price is ever higher.
Broadband far from Ubiquitous
The performance of your cloud apps depends on a number of factors: the speed of the provider's servers, performance of their internal network, quality of their egress network, number of hops between you and them, and most importantly, speed of your Internet or WAN connections.
This last element is particularly problematic. In metro areas, broadband is plentiful. But even good connections can't guarantee high performance. This is known as the great cloud bottleneck. Chatty apps such as productivity software are still particularly ill-suited to the cloud. And for rural shops and workers remoting in from remote areas, cloud apps are frustrating and sometimes not even possible.
And where broadband and high-speed services are available, high speed comes at a cost. Oftentimes the network has to be upgraded to support adequate cloud performance. Sometimes this is in the form of larger or redundant pipes, other times costly performance management and bandwidth shaping tools.
Over-dependence on a cloud vendor can leave your business at risk. For instance, a few years back customers flocked to Nirvanix, a cloud storage vendor that raised $70 million from venture capitalists. With little notice, the company told its 1,200 customers they had to move their data to another provider, as Nirvanix was in the process of going under. This is critical backup data we are talking about here!
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