Cloud Gets Cheaper, On-Premise Gets Pricier

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While on-premise IT gets more expensive and inflexible, the total cost of Cloud computing is on a progressive decline As enterprises trim costs to reinvest savings in core activities, CIOs are pressured to transform IT from being a cost center to being an innovation partner. My previous post was based on the Capgemini Application Landscape […]

While on-premise IT gets more expensive and inflexible, the total cost of Cloud computing is on a progressive decline

As enterprises trim costs to reinvest savings in core activities, CIOs are pressured to transform IT from being a cost center to being an innovation partner. My previous post was based on the Capgemini Application Landscape Report 2014, which lists cost savings as a top priority for more than half of the respondents.

Adoption of disruptive Cloud services is already driving cost reduction. With mobile data exploding and increasing access to robust, high-speed networking, this trend is likely to accelerate. But in the long run, there are several factors that will contribute to the unbeatable proposition Cloud services offer.

With on-premise enterprise software, there’s the cost of staying relevant and innovating. In my experience, costs of upgrading disparate systems, maintaining custom modules, and multiple licenses have grown by more than 20 percent, per annum. Leading on-premise users pay up to $5 million on annual maintenance on key applications; and support contract values average anywhere between 20-25% of the original software’s cost. It’s like paying the same amount they paid for the original perpetual-license, every four-five years.

With the Cloud, you convert those capital overhead expenses into monthly/quarterly operating costs. And those costs are on a gradual decline.

At Capgemini, we partner with almost all large Cloud service providers to help our clients get the best out of their IT investments. Google, Amazon, and Microsoft have all gone in for substantial price cuts since their early days. In its 2013 Annual Report, Amazon said it reduced AWS prices more than 40 times in the past eight years. This is not rocket science; just benefits of scale that are passed onto customers.

As businesses replace expensive, inflexible on-premise applications, many of them look for expertise in Cloud migration. We offer our clients the Capgemini Cloud Assessment, a proven methodology to simplify and enhance current applications for improved agility. In just six to eight weeks, our clients benefit from well-informed recommendations, a business case, and a transformation roadmap.

With access to expertise, businesses can project costs, build ROI models, and plan the migration in phases. The approach will help them steer away from the herd and cautiously rationalize adoption, bringing down costs in the long run.

Then, there is the carbon footprint of expensive-to-maintain server rooms. Cloud computing is based on the premise of aggregating and sharing server usage. Shared data centers deploy fewer machines across efficient server farms to extract maximum computing capacity. Businesses may project the green credentials as a broader enterprise initiative, while booking sustainable savings by eliminating server space costs. Tell us how your organization views the Cloud cost structure with on-premise alternatives as a frame of reference…

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