6 key 'total cost of ownership' metrics for cloud-based apps

Comparing the TCO of cloud versus on-premises systems and applications may be like comparing apples to oranges.

Approaches to measuring "total cost of ownership" (TCO) as we've known it are becoming hopelessly outdated. Managers are still employing TCO metrics that harken back to the days when all they had to worry about were in-house servers and software. Cloud demands new ways of thinking about TCO.

Keyboard and question marks 2 by Joe McKendrick
Photo credit: Joe McKendrick

That's the view of Bruce Guptill, analyst with Saugatuck Research, who points out in a new paper that "everyone has been looking at SaaS (and Cloud) TCO incorrectly or incompletely." This is still an inexact science, he observes, and in almost cases he has looked at, SaaS/cloud approaches were compared "against traditional IT solutions and situations, which usually have different cost types and accounting practices." SaaS and cloud costs will vary greatly from year to year, depending on the stage if implementation.

Guptill outlines 6 key areas in which cloud or SaaS TCO can be determined, while cautioning managers from getting too hung up on the cost aspect, which may far less important than the value the solutions are bringing to the business:

  • Licensing. As the number of users may grow, but will likely remain between 10 and 15 percent of the solution’s TCO, Guptill advises.
  • Implementation. These costs will be greatest during the first few weeks, but then will likely disappear for long stretches of time.
  • Integration. Such costs will increase 'from less than 10 percent in the first year to between 25 and 35 percent annually thereafter, at least through the first few years," says Guptill.
  • User training. These costs may be higher at first, but will shrink to less than 10 percent of TCO, due to greater user familiarity and greater peer-based training.
  • IT training. The costs of getting IT staff up to speed with the services accounts for between 10 and 15 percent of first-year TCO, then keeps on growing for a year or two. At that point, Guptill says, IT training costs then level out and decline "as the IT staff become familiar and comfortable with the solution in its extended/expanded environments."
  • Internal support. Tne costs associated with internal support is due to the success of the cloud program itself. As the complexity of and resources required  for a cloud engagement grow, Guptill points out, internal support requirements will grow as well.