Choosing a Cloud Application: A Hornets’ Nest of Complexity

When pricing cloud versus on-premise applications, CFOs need to beware volume escalators.

As cloud computing is still very much at the peak of the Gartner Hype Cycle (and very much on the mind of CFOs), it’s worth examining how cloud computing can add both complexity and cost to what should be a relatively standard process: selecting an enterprise IT system in a midsize organization. Sometimes, coming down from the clouds to look at a real-world case is a great way to focus the mind.

Case in Point
A few months ago, a midsize Australian organization decided it needed to either upgrade or replace one of its legacy enterprise applications. This organization, with about 3,500 employees, has upward of 20,000 system users across its customer base. The organization approached a number of local and global suppliers, and some responded with on-premise offerings (meaning the application would be loaded onto the business’s servers), while two responded with software-as-as-service (SaaS) solutions (in which the application would be hosted by the provider and accessed through a browser). Surprisingly (to the organization, at least), what was expected to be a relatively straightforward exercise was not, due to the nature of SaaS pricing.

The first thing the organization’s review panel tackled was the challenge of comparing costs between an on-premise application and one hosted in the cloud. The costs of both cloud systems were based on a blend of per user, per month license subscriptions, plus a per transaction cost for certain transaction types.

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