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Cloud usage bills may turn some off

Bandwidth fees from heavily moving data to and from cloud may discourage companies to adopt, but some analysts say clouds bring additional value.
Written by Victoria Ho, Contributor on

Bandwidth charges are a cost companies need to factor into their cloud computing plans, but analysts are split on whether such bills could potentially put off large companies from moving to the cloud.

According to a report by IT investment group Panorama Capital, the cost of using cloud-fed applications will prove prohibitive once a company's bandwidth charges exceed 50GB per day. Basing its analysis on Microsoft's Azure cloud platform's pricing of US$0.1 per gigabyte uploaded and US$0.15 per gigabyte downloaded, Panorama Capital recommended companies that transfer high amounts of data to the cloud, to move their apps off the cloud. This will cut their bandwidth charges by half, the firm said.

One analyst ZDNet Asia spoke to thinks these cost restrictions may alienate larger enterprise customers.

Chris Morris, director of Asia-Pacific services at IDC, said in an e-mail interview that customers are "well aware of the dangers of bandwidth cost blow out".

To better manage costs, Morris said these companies have been limiting the use of cloud-based apps and keeping such deployment to segments where data transmission volumes are small. These include SaaS (software-as-a-service) CRM (customer relationship management) apps, where data is kept with the SaaS provider, minimizing data transmitted, he said.

But, Enterprise Management Associates (EMA) research director, Jim Frey, disagreed.

He said the notion of cloud providers selling bandwidth over-simplifies the issue, noting that cloud providers are justified in charging a premium for data transmissions because of the service they are providing.

Frey explained in an e-mail: "A better term would be capacity. What [Panorama Capital's report] trivializes is the value-add that cloud providers bring to the table in terms of all the data center infrastructure and operations at the end of the bandwidth pipe.

"They charge more for their bandwidth than an Internet provider would because they are providing far more value."

For this reason, larger companies will still find the cloud proposition attractive, especially for services they need to scale up, which may deliver diminishing returns on a bigger scale, he noted.

Not always high cost
Bandwidth costs are also expected to go down over time, pushed by technological advancements and competitive pressure as more cloud players join the game, said Frey. There is currently little competitive pressure, with the cloud services market still in an "early adopter phase" and experiencing high demand, he said.

According to Morris, telcos moving into the cloud space will exert further pressure on price competition and be able to provide single-bill services for their enterprise clients.

Mark Glikson, general manager for Microsoft's developer platform evangelist division, said Azure has a consumption-based price model, which bills customers only for what is used. This allows enterprises to keep costs down during low periods of usage.

Glikson noted that bandwidth costs do not form the full picture of a company's data management costs. Companies can derive savings on physical, on-premise devices from moving data to the cloud, he told ZDNet Asia in an e-mail interview.

"Cloud computing needs to be a part of a wider strategy to identify areas of the business, and periods in the business cycle, where you need high availability of data and processing power," he said, naming examples such as a bank's year-end number-crunching needs, and a busy shopping season for an online retailer.

"Broadband costs might be relatively high [during these periods], but the benefits to the business of this approach make them worthwhile," Glikson said.

However, Frey advised companies to consider the issues of cloud lock-in while planning their initial IT set ups.

He said moving apps off the cloud is "very expensive, time consuming, and risky" for companies that started entirely on the cloud, having chosen this route because they have little internal expertise and infrastructure resources to begin with.

"Anyone considering starting a company that is entirely on the cloud must account for this risk [of migrating away from the cloud] as part of their business plan," he added.

IDC's Morris concurred: "Building the infrastructure and processes, and acquiring the necessary skills will be expensive and difficult if they have never had it."

Asked about the risk of cloud lock-in, Glikson said Microsoft's "software plus services" hybrid cloud model is aimed at "augmenting" on-premise Microsoft-based infrastructure, and made to "easily integrate" with Windows Server. So, customers can migrate from Azure to on-premise computing, he said.

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