Head in the clouds - comparing cloud computing with on-premise for major systems

Less than three years ago, in September 2014, 3Kites ran a seminar (with Kemp IT Law) about balancing the benefits and risks of cloud computing. At that time, there was little genuine activity but much discussion about this new environment along with a number of assumed restrictions, most of the latter being dispelled during the session by our guest speaker, Miles Alexander of the SRA.

Wind forward to the multiple Practice Management System (PMS) and several other product replacement projects which 3Kites is working on as I write and it is interesting to note how many of our clients aren’t just curious about suppliers’ cloud capabilities but actively see its absence as a potential impediment to selection. This though does not mean that all of these clients are moving their key, enterprise wide systems to the cloud. Rather, it is now seen as an inevitable direction of travel and some firms want the option to start on-premise and then move to a proven cloud environment when the time suits them. As such, it is important to undertake the necessary due diligence on suppliers’ cloud plans when evaluating new products (or indeed re-evaluating existing ones where a move from perpetual to subscription costs needs to recognise previous investments).

However, this interregnum between on-premise and cloud platforms requires us to try and compare the relative merits and costs of both approaches to help clients understand the cost of ownership implications over, say, 10 years. Comparisons are not necessarily easy given that the platforms can be fundamentally different, so I have set out a list of areas (often with an eye on PMS replacements, which are prevalent at this point in time) to help prospective procurers when faced with this decision.

On-premise

On-premise software normally carries a (perpetual) licence cost, which for a PMS is often based on ‘time keepers’ whilst a DMS is usually based on a firm’s total number of seats including support staff. Suppliers ideally want all licence fees to start upon contract signing even though the implementation may last for many months (12-24 is not unusual for a PMS), although some firms push back on this.

Where this approach is seen as an impediment to selection, suppliers may choose to offer payment terms spread across the implementation or even provide access to financing. Some suppliers are now providing subscription pricing for on-premise deployments to remove large initial payment/s, although this tends to become more expensive within a few years due to higher annual repeating costs.

Maintenance payments are generally charged annually for software where firms purchase perpetual licences - this provides for ongoing support (at a defined level which may be raised with additional payments) and updates/upgrades although not necessarily new functionality, versions or products. The maintenance payments are normally due from the point of software installation rather than its deployment into production use, although some firms push back on this.

Warranty is a nominal period of cover (often as little as 30-90 days) during which maintenance should not be required and which often starts from the point of software installation rather than its deployment into production use, although some firms push back on this.

On-premise solutions will require the firm to supply multiple servers in order to host the software. These servers are likely to need replacing at least twice in a 10 year product cycle which is not unusual for PMS and DMS implementations. They will also require floor-space (expensive when part of a city-centre location), power, backups, cooling and staff to maintain them. Hosted solutions, ie where an on-premise solution is installed on servers that are held in offsite locations managed by a third party, may reduce total costs here. Either way, the on-premise solution can be maintained on old or low cost equipment as an archive service to ensure access to a known platform long after the move to a new one has been completed – I’m not sure how that would be provided for in the cloud.

Cloud

Cloud-based software tends to come with a subscription model only, although some suppliers will start the subscription for all relevant members of staff from the point of software installation rather than its deployment into production use. Others will only charge for the number of people using the software such that the implementation project carries a lower cost compared to production running.

On the face of it, subscription charges can appear to be much more expensive than on-premise but the true cost of both needs to be compared to make a sensible assessment. Cloud subscriptions will cover the cost of software, hardware (including replacements) and maintenance – this will minimise the cost of support staff and eliminate floor-space, power, backups and cooling costs.

Common costs

Currently, both on-premise and cloud implementations/upgrades require significant services work to fit them to the specific needs of each firm. However, I suspect the tendency over time will be for cloud-only providers to move towards a more normal model of cloud usage (eg as per Workday, an HR tool and a true cloud application, or indeed Facebook) which allows for limited configurations but no customisations. Suppliers will need to be sure that they provide best practice if they are restricting the flexibility of customers to make non-standard changes but, that aside, the net effect will be to reduce services (and therefore costs) for both implementations and upgrades.

Access to information, including the creation of reports, dashboards, BI/MI and the like, will need to be borne by on-premise and cloud solutions alike. However, and as noted above, the need for the management of on-premise hardware including the backups and many elements of business continuity, all but disappear as these systems are moved into the cloud, albeit that such convenience is often paid for within the subscription costs.

Comparing the costs

As noted above, it can be difficult to compare costs between two such fundamentally different ways of providing IT services. However, difficult does not mean impossible and as long as the task is approached with a degree of pragmatism and flexibility (ideally allied to a strategic platform preference), it makes sense to take the time to do the necessary due diligence at the start of a project to be confident that your decision is based on solid foundations.

3Kites has extensive experience of advising firms on all aspects of IT systems and platform selection. If you would like any assistance in these areas, please contact us for a no-obligation meeting to discuss your plans.