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To Cloud or Not to Cloud, That is the (Financial) Question

Certainly, the Internet is in the running for the most significant invention of the 20th century. On its heels have come email, social networks, instantaneous information, phone apps for every need (and beyond them), and millions of jobs. Oh, and binge watching The Good Wife. Every business is now faced with a minefield of technological tools and one is the dilemma of determining what belongs in the cloud and what doesn’t. There are a few things to consider in making that decision which we will discuss over the next few blogs here. This round we will look at the financial question.

The primary financial distinction between the premise systems and cloud systems is deciding between the purchase and the subscription. When you buy applications, you normally own them and within the licensing terms, can use them as you please for a length of time, if not forever. There are often warranty expenses to get support after the sale, but they are usually much cheaper and not required.

But the new model is the subscription, a single fee paid per month in perpetuity such that you never own the product. Once done, you just quit paying and give the product back. I have thought about this model for raising kids as well, but I digress. Besides, what would you do with all those teenagers which are returned?

There can be tax and accounting preferences to either of these (of which I am not qualified to discuss, believe me!), but that is an important component of the decision as well. Apart from that, in terms of direct dollars, it can be a gamble to determine which is best financially. If you buy a product and you use it long enough you will often save money vs. paying the perpetual subscription. That assumes (and it is a big assumption) that your maintenance costs once you own it are not very large. With the subscription purchase everything is normally covered.

Additionally, subscriptions include upgrades as you go, where purchases generally do not. Now, there are some users who are prouder than a rabbit on Mothers’ Day that they have been using Microsoft Office 2003 for 15 years, but I’ll only say they have more problems if that’s their badge of honor. They would beat the subscription system in doing so but are probably wondering why their flip phones aren’t selling.

The point here is that nearly everything in the cloud is on subscription, since it uses someone else’s resources, and you have to be willing to go that route. To be clear, what you use on premise may be purchased as a subscription as well, but you can usually purchase it also or at least minimize the subscriptions. The distinction isn’t hard and fast, but it’s close.

So, To Cloud or Not To Cloud, That Is The (Financial) Question. But it’s not the only one. Next time we will consider another, the Functional Question. Until then, we hope that we have spoken “Cloud and Clear!”


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