The Changing Model of IT Purchasing
Cloud-based technology makes sense for a lot of reasons, one of which is the cost structure. Compared to the traditional model for IT purchasing, cloud tech can often put less risk on the association's shoulders.
Most associations stick close to a traditional IT purchasing model, says Andy Steggles, president and chief customer officer at Higher Logic, a builder of online communities.
In other words, they're used to dealing with a mountain of expenses when introducing new technologies or software to their workspaces. First, they swallow a hefty capital expenditure. Then they continue to cough up cash by handing over fees tied to annual licenses and maintenance, customizations, and related professional services.
The main problem with that process, which Steggles suggests has "plagued associations for years," is that it's risky. He shares a hypothetical story about a 50-line phone system to prove his point.
The traditional model of IT purchasing involves a major risk transference. … Almost 100 percent of the risk is transferred from the vendor to you.—Andy Steggles, Higher Logic
Imagine the initial outlay for this system would be $80,000 total: $70,000 for the hardware and software and $10,000 for setup and configuration. Annual licensing and maintenance would ring up at $10,500 per year.
In this case, "the total capital expenditures would typically be depreciated over the expected lifetime of the system—perhaps 10 years," Steggles says. Because of that, "the resulting expense might be recognized as just $7,000 per year in depreciation." The licensing fees would be ongoing, of course, so the total annual operating expense for this particular project would come to around $17,500 per year.
The risk here, he adds, comes from any "unanticipated requirements the system may not be able to do. Keep in mind that the requirement may not exist today, but it may exist tomorrow."
For example, say your building lease runs out two years after you sign the phone contract. "You select and move into a new office, only to find out [it] can't run the fiber lines your new phone exchange might require," Steggles suggests. "If you bite the bullet and scrap the system, you then have to take an immediate loss on the remainder of the depreciation"—which in this instance would be 80 percent of the original $80,000.
"The traditional model of IT purchasing involves a major risk transference," he says. The moment you sign on the proverbial dotted line and make your first payment, "almost 100 percent of the risk is transferred from the vendor to you."
The Benefits of Moving Into the Cloud
How could moving that same system into the cloud prevent your association from dealing with so much risk?
Steggles' short-and-sweet response is it would free you from the capital expenditures mentioned earlier. Also, its operating expenses would be far below those associated with a traditional phone system. And you wouldn't have to account for depreciation with a cloud-based product.
From a risk-mitigation perspective, he adds, "if a new requirement arises, since there is no physical hardware, the purchaser can much more easily move to a new vendor. Or the vendor can opt to address the new requirement at no additional cost."
These positives aren't limited to phone systems, mind you. "Every slightly significant piece of technology that might be found in an organization" has been moved to and can benefit from being in the cloud, Steggles says.
Just remember that transitioning to the cloud doesn't always mean saving money, though. "It fully depends on the software," according to Steggles. "Most organizations that move to the cloud do so not because of the potential cost savings but to improve speed and performance and to help with disaster recovery and redundancy plans."
An Association Example
As the Percussive Arts Society's long-time IT and interactive media director, Marianella Moreno has helped transition many of the organization's IT functions out of its headquarters and into the cloud in the last eight or so years. Among them: email, digital media production and delivery, and file management.
Before, Moreno had a stack of hard drives and servers on site to deal with each of those entities. "That's no longer the case. We don't need them." Why? Because when the association decided to shift certain technologies and pieces of software to the cloud, it sent them packing.
"We used to have a rack of four servers in a server room. That has been virtualized to a single Mac Mini. One tiny computer," she says. "Which means that if I ever have to move the business, server-wise, all I would need to do is unplug that computer and hook it into another internet provider." Or, if the computer failed for some reason or other, "we'd just have to purchase another Mac Mini and restore everything into that new machine."
That's just one of the reasons Moreno is glad the Percussive Arts Society has pushed so many aspects of its operation to the cloud. Another: The number of moving parts she has to keep an eye on has decreased dramatically. Which is a big deal, as "IT is one person here, and that is me. I direct all of the processes of IT—from the phones, to the servers, to the backups, the web, and the mobile apps. Everything."
If it weren't for cloud computing, she adds, "I don't think I would sleep. There would be too many points of failure, too many things to manage." When you keep all of these functions in house, "you don't have anywhere to go or anyone to turn to if a problem pops up. Now, if Adobe or Dropbox or Google or Vimeo go down, I can call them and they'll address the issue. It's so nice to have resources you can rely on that aren't increasing your costs or increasing your risk."
Are there any aspects of the Percussive Arts Society's IT operations that Moreno can't see taking to the cloud? Its AMS is the only one she mentions. And even then, the main reason she doesn't see it moving in that direction anytime soon is that the cloud version of the product "doesn't support the number of users we need or the integrations and services we currently have."