Companies that move the bulk of their IT operations to cloud services can end up realizing significant overall cost savings, according to a study by analyst firm Computer Economics.
The study looked specifically at companies that had moved mostly to the cloud and compared their spending habits to those of “more typical organizations,” report author and Computer Economics President Frank Scavo wrote.
Computer Economics surveyed seven organizations with revenue ranging from US$50 million to $550 million. While acknowledging the sample size is small, the respondents’ relative size is crucial, Scavo said in an interview.
For example, it would be easy to find many companies with only five to 10 employees that heavily use cloud services, but it’s too difficult to apply industry IT spending benchmarks to such small organizations for comparison purposes, Scavo said.
It’s also difficult to find larger enterprises with mostly cloud-based deployments, since these companies tend to have mission-critical on-premises systems representing major percentages of their IT spending and have no compelling reason to move them to the cloud, he added.
The seven companies responding to the survey were from a variety of industries, including manufacturing, wholesale distribution and integration services.
One respondent is running all of its business applications in the cloud, including Workday for human resources, Salesforce.com for CRM (customer relationship management) and Google Apps for an office suite.
In every case, the companies said they were spending less money on IT now compared to industry benchmark data Computer Economics has been collecting since 1990. On average, the cost reduction was more than 15 percent.
The results came as a surprise to Scavo.
“When we first started this research I expected the answer was going to be that companies that went to cloud computing spent about the same amount on IT as those on-premises but spend it in smarter or better ways,” he said in an interview. Instead, the study found they were both saving money and making smarter IT investments, according to Scavo.
The cloud-centric companies surveyed are enjoying big savings in one obvious area: data-center costs. While the industry average for data centers is 16.6 percent of IT budgets, the heavy cloud users reported it was only 7 percent of their total IT spending.
Surveyed companies were also able to devote 40 percent of their spending to new projects, compared to the 30 percent industry average.
“The implications of this finding should not be underestimated,” Scavo wrote in the report. “In today’s economy, few organizations give a blank check to the IT department. Yet user demand for new systems and IT capabilities continues to increase.”
While the cost of SaaS subscriptions can seem to be the same or greater over time compared to on-premises implementations, “many cost savings are not realized until the on-premises infrastructure is significantly reduced or eliminated,” Scavo added.
Apart from the cost savings, factors such as easier upgrades and scalability “argue strongly in favor of SaaS as the center of an IT strategy for most organizations,” he wrote.