What Keeps Small Business Out of the Cloud?

Posted April 06, 2015

By Aleksandr Peterson

According to a recent estimate by research firm Markets and Markets, the global cloud computing industry will be worth more than $121 billion in 2015, reflecting a 26.2 percent compound annual growth rate (CAGR).

Everywhere you turn, people are talking about cloud software, cloud platforms, cloud infrastructure, and cloud storage, but it's far more than a cultural fad. Cloud technology has veritably transformed the way people manage their lives and businesses, whether they're storing files in a Google Drive or purchasing a cloud-hosted business productivity suite. Gartner has gone so far as to predict the demise of traditional IT sourcing and a complete transition to cloud office systems before the end of the year.

But cloud technology has swarmed the IT market so fast that its left some people behind. We're talking about the skeptics, the fearful, I'm-happy-with-what-I-have business owners. Plenty of organizations still use Windows XP and the same legacy CRM software (or HR system, project management tool, etc.) they've used for years. After all, they own the license to it, and they know where the data's stored—in their server closet, behind their firewall, on their private network.

The Benefits of Cloud Technology

When the "cloud" descriptor gets tacked on to any IT word—whether it be software, storage, platform, etc.—it essentially means that unit's back-end infrastructure is housed on a remote server and accessed through the Internet. The cloud provider then charges customers a monthly or yearly subscription cost (instead of an upfront purchase). The phrase "moving to the cloud" usually denotes a migration of primary business systems from older, on-premises software to a software-as-a-service (SaaS) version.

cloud computing and small business

Organizations that forego the cloud may still function at capacity, but they'll miss out on a host of capabilities that modern cloud software affords businesses, and they may lose their competitive edge. Here are some examples of benefits you'll reap from cloud computing:

●     Mobility: Since you can access cloud software from anywhere with an Internet connection, your team members and agents can log into the system and deliver service, update records, book sales, and more, while they're away from the office or working remotely.

●     Collaboration: Similarly, cloud solutions tend to be better at facilitating collaboration between departments and teams regardless of their physical location. Many systems even incorporate their own social-style newsfeeds, file sharing, and internal messaging systems.

●     Elasticity: Typically priced on a per user (named or concurrent) basis, cloud software is more scalable for businesses of varying size. This is especially evident when team structures change, and a company can simply add or remove users from the contract to optimize costs.

●     Lower upfront cost: Traditionally, the high cost of on-premises business software has made it a triage case—something larger companies buy to stay ahead, and something smaller companies only spring for when they absolutely have to (which means a lot of small businesses still use something as basic as Excel and a Rolodex to run their operations). Again, since cloud systems use a subscription model, there are no large upfront expenses. This makes high-performance software available to the masses.

The Concerns About Cloud Technology

Just because cloud-critics miss out on a few modern capabilities doesn't necessarily mean they're wrong. Some organizations have good reasons to shy away from full cloud-migration. Here are three of the most common reasons:

1. Data security

A recent report by KPMG (PDF), an audit, tax and advisory firm, confirmed that security concerns continue to be the most common barriers to cloud adoption, with more than half of business decision-makers citing data loss and data privacy as top hesitations. After witnessing the high profile security breaches of companies like Target and Home Depot in the past several years, you can't blame people for being cautious.

The question of cloud security, however, is more a question of vendor reliability. If you choose a reputable software or infrastructure provider, their security measures (such as 128-bit encryption, intrusion detection systems, distributed grid architectures, redundant networking) might be stronger than what you could provide on your own budget. This is especially true of small businesses and nonprofit organizations.

2. Downtime and outages

Moving to the cloud means you rely on the Internet to get work done and serve your customers. A system outage, even when brief, can cause frustration, service bottlenecks, and even lost sales or contracts. The good news: many cloud-based systems offer at least minimal offline capabilities and will automatically resync when the system comes back online. And let's be honest, has your on-premises software never failed you? Or perhaps lost a file you were working on? Locked up for twenty minutes straight until you rebooted the system?

3. Return on Investment

Many cloud advocates tout the money-saving advantage of cloud-based software, but is it actually cheaper—in the long run than on-site software? Many business leaders still avoid cloud systems because they don't believe the return-on-investment (ROI) would outweigh the total cost of ownership (TCO). This is especially true if they already own an on-premises system that performs reasonably well.

Certainly, that's a valid consideration, but there's another hidden variable: updates. When you subscribe to a cloud system, the vendor typically guarantees automatic updates, so you know your system will stay ahead of security vulnerabilities and always have the latest features. On-premises software licensing doesn't always include this guarantee. If the vendor runs into trouble, or discontinues your product, you may have spent thousands of dollars on a license for a system that will never receive an update or service again. On a monthly cloud system, you could simply cancel your subscription and find a new product.

Clarity on Cloud Computing

Migrating your business systems to the cloud is a big decision—one that has divided many in the IT community over the past decade. The cloud may not be not right for every business. If your systems house large volumes of sensitive, proprietary data, and your outright ownership of that data is of paramount importance (such as in the medical industry), you may have just cause to think twice about trusting it to the cloud.

But by and large, businesses find that cloud technology better supports their core processes and gives them new freedom to collaborate, conduct business on the go, and stay synced in real time. And the SaaS model means that small businesses, even start-ups, can access industrial-strength solutions that improve their bottom line, instead of threaten it.

Aleksandr Peterson is a technology analyst at TechnologyAdvice. He covers gamification, CRMs, project management, and other emerging business technology. Connect with him on LinkedIn.

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