Cloud Economics for Small Business

SMEs spend significant money on IT infrastructure. Typically, they have owned the IT assets themselves and have to carry the burden of capital purchase and ongoing maintenance cost.

However, there is a paradigm shift occurring within the IT industry with what is often referred to as cloud computing. This has the potential to dramatically change the way SMEs operate their IT infrastructure. With cloud computing small businesses no longer must own the IT assets themselves.

Instead, they can lease these assets on a as needed basis and only pay for what they use. You can consider this as analogous to purchasing electricity from utility firm.

Cloud computing considerably changes the financing of IT for SMEs. The core of this revolves around cost savings and it helps small business by:

– Lowering the cost of operating technology
– Prioritising operating expenditure over capital expenditure
– Bringing down total cost of ownership of the infrastructure
– Adding business value with reinvigorated focus on the core activities

Infrastructural comparison

For small businesses, conventional IT expenditures are capital intensive. This is as a result of the need to buy the hardware in addition to software licenses outright.

Offsite infrastructure works on a recurring expenditure model. Businesses do not have to spend money upfront to purchase the assets. It serves as a regular operating expense, and in addition as insurance against server outages. For instance, Amazon’s East Coast data centre suffered an outage recently, which triggered lots of issues for small businesses using their service. 

However, businesses that became victims of the outage in the East Coast might have simply averted the loss if they had an offsite backup on the West Coast. Businesses working within the west might contemplate co-location in San Diego or Los Angeles as their hub, however there is nothing to stop their eastern counterparts from also benefiting from this facility.

In reality, businesses which have a nation-wide presence would be sensible to have a number of colocation hubs in several areas.

How do SMEs benefit financially?

First of all, it provides them flexibility to terminate the cost at will. With the capital purchase within the conventional model business owners are stuck with ongoing operating cost whether or not they are totally utilising the assets or not. In addition, the depreciation and financing costs are usually not incurred within the offsite model.

In a traditional study carried out by O’Reilly to check internal IT versus offsite infrastructure, it was proven that within the latter case, savings amounted to roughly 29%. Vitally, there isn’t any capital investment required in the offsite case.

Total cost of ownership can be a vital consideration for small businesses.  With the offsite infrastructure model this cost drops considerably.

When it involves offsite options such as the cloud, businesses have a number of pricing options accessible to them. They are based mostly on well-defined metrics such as the RAM, storage, security, colocation and bandwidth.

In the case of on-premise, or conventional solutions, businesses incur direct costs, indirect costs and overhead costs. Compare this with a UK firm based in Berkshire selecting colocation in Greater Manchester, where there is no additional cost of network and storage infrastructure.

An on-premise solution would require energy, floorspace, storage and IT operations, increasing the overall cost. Also, there are network and storage infrastructure indirect costs for managing the overall operations of the enterprise. Finally, there is the overhead cost of owning servers.

This analysis clearly reveals that the cost of ownership within the case of offsite infrastructure is just not only lower, but it additionally presents greater flexibility. Moreover, it permits the small business to shift its focus towards operating the businesses instead rather than worrying about managing IT infrastructure. 

A global example of this is Netflix, which has taken advantage of Amazon’s cloud infrastructure to run its movie streaming services.

Small businesses should revisit their IT model and think about transferring to offsite infrastructure to decrease their costs, achieve flexibility and obtain stability and connectivity of their data centres.

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