May 21, 2015

Not All Clouds Are Born Equal

Not All Clouds Are Born Equal

Most businesses accept that the cloud is now a permanent fixture in the systems landscape. Organizations large and small are buying into the cloud. IDC the analyst firm says that public IT cloud services spending will grow to more than $127 billion in 2018, representing a compound annual growth rate of 22.8%, which is about six times the rate of growth for the overall IT market.

Interestingly, small companies (500 or fewer employees) and large enterprises (5,001 or more employees) have the highest adoption rate of cloud strategies at 40% and 35% respectively1. One of the factors underlying this trend is that rapidly growing small enterprises and large enterprises with diverse operations appreciate the flexibility and scalability conferred by the cloud. But not all clouds are the same, and nowhere is this more obvious than between so-called “hosted” solutions in the cloud and the popular “Software as a Service” (SaaS) model.

For companies of all sizes, the SaaS model allows businesses to purchase the capacity they need, usually as a monthly rental, scaling up (or down) on-demand rather than paying upfront for capacity they will never use. And for large enterprises, in particular, the SaaS approach provides welcome agility allowing them to quickly roll out capability to test new markets, support re-organizations and acquisitions.

SaaS software vendors buy or rent their capacity from platform-as-a-service or infrastructure-as-a-service vendors that have more or less infinite capacity which can be switched on as needed, virtually on-demand ensuring quicker and lower costs of deployment. They can also smooth out peaks and troughs in demand through the generous capacity under management.

Hosted solutions are rather different. In this scenario, old-fashioned on-premise software is re-positioned and hosted in the cloud in its own enclave rather than being shared across thousands of users. The hardware and software infrastructure is not readily scalable like SaaS software, so as demand for capacity increases, it has to be ordered, provisioned and configured as it was in the past, causing significant delay and denying businesses the agility that attracted them to the ‘cloud’ in the first place.

But for unwary CFOs the difference between hosted and SaaS solutions is not always visible and that is because confusingly, hosted and SaaS solutions are both frequently labeled as “Cloud” - terminology that is encouraged by traditional on-premise vendors who find themselves at a competitive disadvantage without a SaaS offering.

And it is only now that difficulties are beginning to emerge as businesses with hosted solutions find that their so-called ‘cloud’ solutions are not delivering on their promise of agility. And although hosted solutions enable organizations to shift some or all of the management of their systems to other providers, in all other respects they may find themselves simply migrating the difficulties they experienced on-premises to another place.

Mario Spanicciati
Chief Strategy Officer

Modern Accounting