With more business helms towards cloud computing, analysts cites perils as pay-as-you-go tactics of using services over the Internet might not be a healthy switch.
Few contemporary business software contracts have been eyeing into cloud service negotiations. Analysts report that Software service providers are merging applications, a common practice with regular packaged software deals, compulsorily accepting to a multiyear commitment for using applications and other services. Undoubtedly, the habits of these businesses run with the cloud computing’s affluent thesis of ‘flexibility’, leveraging multiple service options and bringing cost-effectiveness and of course a next paradigm of technology.
“The problem is that when you buy cloud software, you’re going to be stuck with it for a long time,” said R “Ray” Wang, principal analyst of Constellation Research Inc. The good news, he said, is that cloud-based software is initially cheaper and gets continuously upgraded. “The bad news is that it might cost you more than owning it” over the lifetime of a three-, five- or even seven-year licensing agreement, he added.
Looking back a decade, on-demand enterprise applications got vows for its promise of being cheap and flexible choice for IT demands. But today, the promises stumbles with upfront infrastructure and licensing costs, on top of ongoing fees for maintenance, support and upgrades.
Furthermore, it has proved difficult for some businesses to switch among competing cloud providers, said Dolores Ianni, a Gartner Research analyst. The more data and systems that a company maintains in the cloud, the bigger the job of changing cloud providers. Cloud integration, or moving data among various cloud-based services, has become a major part of the chief information officer’s role.
As my earlier blogs reiterated that 2015 is the year for cloud computing – recent Verizon Communications survey on enterprise-level cloud customers reported that 84% said their use of the cloud increased in the past year. Estimated a good amount of companies noted that at least 75% of their workloads will be in the cloud by 2018.
David Linthicum, senior vice president of Cloud Technology Partners Inc, a consulting firm that advises Global 2000 companies on cloud-related activities said “The promise of cloud was new ways of pricing the consumption of software that would be more agile and cost-effective, open and freeing.”
The SaaS(software-as-a-service) renders cloud applications on a subscription basis, gratifying the budget for adopters allowing licensing agreements with renewal periods even as short as one-to-two-years, or monthly basis.
The game-changer offering was well added to the businesses avoiding the risk of costly and merely used in-house applications and elongated into new scaled-up services.
But that vision can be hard to realize, as the experience of one CIO shows.
Frank Sirianni, CIO of Fordham University, said the university recently shifted from using an on-premises version of Ellucian Inc. business software to the cloud version. Although he agreed to a three-year-deal, Ellucian sought to lock him in for a longer term with variable pricing from month to month and a minimum monthly charge. Sirianni said he opted for a fixed monthly price, in order to avoid paying more if the university used more computing cycles, but not less if usage declined. Fordham wanted more predictable software spending over the course of the year, he said.
Analysts say vendors are eyeing for big budget contracts and bundling applications together. Such bundling with a pay-as-you-go approach for business customers “is nearly impossible,” says John Rymer, a Forrester Research analyst. Without selling application bundles and multiyear commitments, vendors face declining returns from their traditional product lines—due to the shift to the cloud—and paltry revenue from their new cloud services, he said.
The rise of cloud computing shook up the relationship between businesses and software vendors, but like any commitment, it has grown complex, says Gartner’s Ms. Ianni. “You’re not living together anymore, you’re getting married,” she said.
“Longer agreements can reflect the interests of customers as well as suppliers, because longer-term commitments are often necessary to accommodate customer demand for price discounts. Initially cloud providers wouldn’t give it to them but now they’re acquiescing referring to upfront discounts, offset with longer duration contracts added Linthicum, of Cloud Technology Partners.”
According to Gartner survey, nine percent of users today are not even considering cloud computing for software-as-a-service (SaaS) projects, a number that increases to 15 percent for infrastructure-as-a-service (IaaS) projects. While a larger percentage view cloud as something to consider on an exception basis, nearly half have quickly moved from viewing cloud as a concept to a viable option.
The report says the possibilities, but with growing critical IT projects, requiring infrastructure and operations (I&O), biggies to small Industries are tossing up their money into the next ‘Digital Gamble’.