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4 Ways Customers Save Money Using Cloud Computing

26 May 2015 by Howard M Cohen

There’s no magic. Cloud computing is a great strategy for delivering higher-quality IT services at a much lower cost. That’s what makes it such a compelling value proposition for customers. Where else can they enjoy higher quality at lower cost?

Defining the Difference Between Price & Cost

This is one of the most classic sales objections, and one of the easiest to overcome. Customers will often tell you that your price is too high, higher than your competition’s.

Perhaps the best way to answer is to ask what their “cost” is. When you say “cost,” explain that you’re referring to the total cost across the entire lifespan of the product. How much does it cost to run it, to power it, to keep it at correct operating temperature, to manage it and to maintain it?

Yes, this is often referred to as the “Total Cost of Ownership” (TCO), but you want to get past the jargon and address the reality of the situation. You can buy an expensive item that costs little to maintain or an inexpensive item that has to be repaired regularly. When you add up everything, you’ll often find that the higher-priced item cost far less than the “cheap” choice.

Two Kinds of Cost

One of the things your customer, and you, may overlook is that there are two kinds of costs. There are direct costs — such as the upfront price of purchasing a product — and the cost of powering the product. Even maintaining the product is a direct cost. The value of the productive time people lose when products fail is an indirect cost that often goes unnoticed or unrecognized, as is the cost of excess power or circuit utilization when certain products are performing incorrectly.

There are also the costs that are hidden from you as a provider of services. We’ve all had customers who have kept their equipment running far beyond the recommended lifespan. If you’ve sold that customer a maintenance agreement, costs may start transferring to you as you have to make multiple service calls on equipment that didn’t require any attention for the first five years. As you approach eight to 10 years out, you may not realize it, but you’ve lost more in the cost of service calls than you ever made in the sale of the equipment. That’s food for thought for those who still want to sell on-premises servers instead of cloud.

Step 1: Eliminating Purchases (CapEx)

There are many products that fall off of your customer’s shopping list when they fully move IT operations to cloud. They don’t need to purchase servers or storage devices anymore. They can also eliminate the switches, routers and other communications equipment that supported those servers and storage. Though they’ll still need some network infrastructure if they’re supporting an on-premises user network.

This can reduce your own costs as well. With less requirement for processing purchases, you may find you can reduce your purchasing as well as warehouse and handling personnel.

Step 2: Reducing and Eliminating Recurring Operating Expenses (OpEx)

We’ve said this repeatedly, but it always bears repeating. Nearest and dearest to every manager’s heart is the desire to reduce ongoing and recurring operating costs. Cloud data centers make it possible for them to deliver higher service levels than ever before while they reduce those costs. When you choose to use servers and software applications housed in a cloud data center, you eliminate the need to own and manage servers on your own premises, as we’ve already observed. Eliminating those machines significantly reduces operating in a variety of ways, including:

  • Housing fewer machines, returning physical space for other uses
  • Powering fewer machines, reducing a large operating expense
  • Cooling fewer machines, reducing another large operating expense
  • Maintaining fewer machines, eliminating expensive service agreements
  • Supporting and managing fewer machines, lowering your payroll

All of this means spending far less.

Step 3 – The Cost of Operating Responsibility

If your customer still has IT operations on premises, they are still staying up nights worrying whether today’s backup ran, or if the uninterruptible power supplies powering the servers have suddenly been interrupted.  They have nightmares about servers going down and bringing operations to a halt.

When they move IT operations to cloud, they also move responsibility to daily operations such as data backup, equipment maintenance and operating continuity to a carefully selected vendor. Not only may the periodic payments for the service be lower than the cost of operating all of this themselves, the cost of the toll it takes on them must be considered as well.

Step 4 – You Only Pay for What You Use

The “elasticity” of cloud computing translates into significant savings for customers and a new service offering for you as well.

A fundamental element of cloud computing is that it provides a shared pool of resources such as memory, processing power, storage and more. Users can easily and rapidly request and receive these resources, and just as rapidly release them when no longer needed. Since all resource utilization is metered, users only pay for what they use when they use it.

Compare this to upgrading the hard disk storage in an on-premises server. Your customer has maxed out a four-terabyte storage device and requests that you recommend an upgrade. Allowing for future growth, you recommend a 10-terabyte device. On the day you install that new drive and transfer the existing data to it, six terabytes are sitting there empty and wasted. Your customer has paid for them, but they are idle.  Over time, as more data gets added, less is wasted, but your customer has still paid for it.

Your cloud customer requests additional storage from a self-service portal in small increments. They may only add a few hundred gigabytes at a time to accommodate additional storage as it happens. If they decide to archive older data to disks or tape, they can then go back to the self-service portal and reduce the amount of storage they are using, reducing their monthly cloud services fee in the process.

Of course, you’ll want to offer them your new capacity monitoring service in which you watch what they are actually using as opposed to what they have subscribed for. When you see excess capacity that’s not in use, you advise your customer, reduce the requested capacity, save them more and become their hero.

Takeaways

Cloud computing creates many ways for your customers to reduce costs, save money and increase their operating profitability.

What you should also take away is that the reduction in the cost of selling and maintaining customer premises equipment also contributes positively to your own bottom line.