Why cost is no longer the deciding factor for SMEs choosing to put their financials in the Cloud

8th April 2013

Perceived wisdom suggests that the financials in the Cloud offers cost advantages over equivalent on-premises solutions.  But as FSN Writer Michelle Simon discovers, for small businesses there may be little to choose from between one route or the other.  Many organizations have been encouraged to believe that they can cut their costs by transitioning to the Cloud and whilst this may be true of larger organizations with deep investments in IT infrastructure and resources, a very different picture emerges around the SME sector.

 

 

 

Take for example “Sage One” a Cloud solution from Sage.  It is advertised on its web site at a cost of £10 per month excluding VAT. The price includes 24/7 support via telephone or email and also entitles the user to ‘free’ upgrades.

By comparison, Sage Instant Accounts (a near equivalent desktop solution) involves a one-off fee of £125 excluding VAT.  Optional support costs anywhere from £65 to £150 excluding VAT depending on the level of support required.  For example, “Sage Extra” support which entitles the user to telephone or email support as well as free upgrades costs £150 ex VAT. 

Quickbooks another popular supplier follows a similar pricing model.  Quickbooks “Online Simplestart” (the Cloud solution) incurs a fee of £9 a month excluding VAT and again, like Sage, includes full support and ‘free’ upgrades.  Quickbooks “Simplestart” (the desktop solution) costs just £119 excluding VAT but there is no support package offered since Quickbooks informs FSN the system is so easy to use customers should not require any support, however users can seek help through the community support pages online or can telephone the helpline at a cost of £50 ex VAT per call.  

As the table below shows, whether Cloud or desktop versions come out on top at this end of the market often hinges on the support options taken - and even then there is little to choose between the two offerings.     If no support is required then over a 5 year period the desktop solutions appear less costly, but not by a great margin.

 Sage picture.jpg

The figures suggest that SMEs (particularly start-ups) should be indifferent between Cloud-based and on-premises solutions on the basis of cost.   But the perception is very different, with most businesses believing they will save money in the Cloud. However, at the SME end of the market the cost savings to be realised in moving to the Cloud are simply not there.  Firstly, on-premise solutions are relatively easy to install and can usually be run on a standard PC or laptop.  There is no requirement for large servers or powerful machines, a considerable cost which is traditionally saved by moving to the Cloud.  And in a similar vein, there are no cost savings to be carved out through scaling back on a large IT department, or an opportunity cost to be weighed up freeing up scarce IT resource to work on more strategic projects since these factors are not generally relevant to very small enterprises, sole traders and businesses with a handful of employees.  

However the lack of financial savings realised by transitioning to the Cloud is not necessarily a bad thing, it simply means SMEs have to decide between Cloud and non-cloud options on their technical and operational merits rather than price alone.  Other factors come into play. For example, for an SME which is likely to experience rapid growth, the ability to scale its IT resources up or down as it evolves could be vital.  And for those with mobile workforces the Cloud helpfully enables most applications to be viewed through a web browser on a laptop, tablet or mobile phone.  With a stretched workforce on the go, key information can be accessed remotely enabling better and faster decision making.  Added to which deployment in the Cloud can be more straightforward and rapid giving users near instantaneous access to the applications they require.

As the business evolves it can avoid IT infrastructure costs since the software supplier remains responsible for the ‘heavy lifting’, such as automatic backup and storage facilities.

Despite these benefits however, there are some organizations that prefer to keep their feet firmly on the ground, afraid about the security risk generated through surrendering their data to 3rd parties and will continue to run a desktop application.

So is apparent price parity between on-premises and the Cloud a bad thing for SMEs? Well not if it causes businesses to look more closely at the options and not to make a decision purely on the basis of licence fee.  Like their bank accounts, organizations do not change their suppliers very often, so deep consideration and a weighing up of all of the factors associated with a potential migration to the Cloud is important. Taking price out of the equation should help to lift the fog from the decision.

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