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Study analyzes TCO metrics for cloud vs. on-premise solutions

I’ve heard anecdotally that the biggest difference between the cloud computing craze and other hype cycles that came before it is that in the case of cloud technologies, real customers are asking real questions. Not so for other emerging technology areas, when solution providers had to foist their ideas upon prospects.

This is not to say that cloud computing will be an easy sell.

For one thing, it probably will be mainly appropriate in cases where an organization doesn’t already have the infrastructure in place for an on-premise alternatives. Which means it is more likely that small and midsize businesses will lead the way with adoption.

Given all this, the folks at NetSuite have been pushing hard to position their suite of cloud-based business application services as a better total cost of ownership proposition than the on-premise alternatives. The latest illustration of this is a research study from analyst firm Hurwitz Associates called “The Compelling TCO Case for Cloud Computing in SMB and Mid-Market Enterprises.”

In the report, Hurwitz outlines the different costs associated with deploying a cloud solution versus an on-premise one. One of the most impressive numbers from this report is that in a 100-user scenario using NetSuite as an example, a cloud solution will cost $730,745 less than the on-premise option, based on infrastructure costs, training, implementation, and support. The report concludes with recommendations on how organizations can do their own cost comparisons.

Which leads me to ask all those IT solution providers out there. Where does this leave you? Actually, in not such a bad position. The Hurwitz data suggests there is still a serious role for VARs or service provider resources that have skills in solution design, implementation and integration. In the Hurwitz cost analysis, the researchers estimate that approximately 30 percent of the costs for a cloud solution will be related to VARs or consultants, compared with 58 percent to 60 percent in an on-premise model.

A much smaller percentage, maybe, but the focus will be on design, process consulting and application integration, which typically lead to higher profit margins than straight infrastructure deployment.

Here’s a link to the complete Cloud Computing study by Hurwitz Associates.

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