For years, companies have simply looked at IT budgets as a necessary and unavoidable cost of doing business. Yes, buying, owning and maintaining software applications was expensive, but what were the alternatives? Gartner, the leading IT research firm, estimates that companies pay four times as much annually to operate software applications than they paid for then in the first place. It is no surprise then that cloud computing is gaining so rapidly in popularity; once applications leave the building and are accessed from anywhere in the world through a web browser, the total cost of ownership tends to plummet. Now, even such brass tack applications as accounting software are available through the cloud. As befits an accounting discussion, this paper looks at the four major sources of savings when moving from traditional software to cloud software.
Cloud Accounting Software Turns TCO models On Their Heads
IT Overhead. Most of a typical IT budget goes in roughly equivalent chunks to personnel cost and hardware. Software—new functionality, improved efficiencies, innovative new erp solutions—get what’s left over. It takes a lot of people to maintain the software already purchased and it takes a lot of the software budget to pay additional license fees year after year. In TCO studies, companies frequently underestimate the “people” costs associated with servicing their erp applications. Hardware and software costs are easily quantifiable. How big a bite out of the remaining IT budget is eaten up by software support deserves closer analysis.
Cloud computing dramatically changes that allocation. There is far less hardware investment to make because the cloud erp vendor is maintaining the hosting service and data centers. That reduces IT personnel requirements, too, since the support staff is now external to the corporation. Much more of the budget is freed up to deploy additional cloud applications to serve other parts of the business.
Managing Growth. Traditional software requires a company to buy seat licenses in 50 or 100-user chunks. Companies who expect to grow often sign up for the number of users they’ll eventually have, and end up paying far too much for far too long. This expense tends to “disappear,” resurfacing only annually in the fine print of the annual license renewal.
Cloud software more flexibly grows with your business. You start paying monthly for only as many users need to have access. A day later, a week later, you can add or subtract seats. The total is reviewed monthly, so you are never paying for more than you are actually using.
The Permanent Honeymoon. Cloud computer vendors know they have to earn your business every month. As the outsourced portion of you IT support staff, they know they have a commitment to provide excellent customer service on an hourly basis. It’s like a perpetual honeymoon, with you, the customer, the constant focus of the vendor’s attention. Compare that with traditional software. After you buy it, it is your problem. If the software doesn’t work right, or you are only getting half the expected benefits, the software vendor is not on the hook. With cloud applications, service never stops.
Free innovation. With traditional software, bug fixes, upgrades and extensions come but once a year, and at great expense, not just for the software, but for the cost of roiling them out across the enterprise.
With cloud computing, upgrades and fixes happen all the time, seamlessly and in the background, and usually at no additional cost. You get access to the latest innovations without having to wait for them or pay for them.