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Reducing Risk by Way of Cloud

The cloud will continue to grow at a staggering rate. It may or may not deliver any new capabilities; it may or may not represent decreased control over the applications; it may or may not be about consumerization or BYOD. The real driver behind cloud adoption is risk mitigation.

The typical cloud vs. premises debate pits two meaningless terms against each other. The cloud has come to represent everything from SIP trunks to YouTube. The label gets proudly affixed to any service that involves network delivery. As the number of these services increases, so does the number of vendor offers brandishing the term.

Most of the seemingly clear distinctions between premises and cloud are actually ambiguous. Let's take a look.

A decade ago, the premises model was clear--typically a proprietary box, deployed at the location where the box's functionality was being used. Although this still holds true for many, it is no longer a reliable description.

The premises-based system has left the building.

Premises-based systems are increasingly located off-site relative to most enterprise locations; centralizing communications offers many operational and financial benefits. Branch offices are increasingly equipment-less, even when there are data center-based "premises" deployments. And when the centralization takes place in an off-site data center, even the main offices become equipment-less.

Increasingly, UC premises-based solutions may not even be physical--many are simply software on standard or virtualized servers.

Thanks to the rise in managed services, premises-based systems aren't necessarily about control either. Who owns the device is frequently cited as a differentiator between "premises" and "cloud", but that's also an unreliable indicator. The use of operating leases is as old as the PBX itself. Acquiring a premises-based system under an operating lease is effectively a rental or OPEX model.

So most of the common tests of premises vs. cloud are nebulous at best. A rented software-based system, off-site (delivered over the network) and managed by a service provider remains defined as a premises-based system. And yet, despite the broadening definitions of premises, it's the cloud sector that's showing impressive growth rates. Analysts generally agree that this strong growth will continue. Plus, just about every major premises vendor is prioritizing cloud with R&D spend.

Why? You might assume the attraction is price. But, as previously described, cloud services may actually be more expensive than premises-based alternatives.

The actual reason is because cloud services represent a shift in risk from buyer to provider.

With major long term commitments comes inherent risk associated with future assumptions. That's life--rewards and benefits often involve risks, and who's going to offer a comprehensive UC solution without demanding a huge upfront commitment from the customer? At least that was the case in the premises-based world.

For decades, the PBX has been a necessary, non-negotiable purchase. You couldn't get a contractual guarantee that it would work as expected, deliver the desired results, or meet future needs. Nor were there any guarantees that the manufacturer and dealer would continue to support it, or even stay in business. And there's no assurance phones will even be used in the future. Now sign here.

Most customers take steps to mitigate these risks, including extensive evaluations, analyst reports, consultants, reference checks, broad evaluation committees, and so on. Eventually a decision gets made, financing gets arranged, and the risk begins. Caveat emptor.

The lure of the cloud is about flipping this risk to the provider. It's a combination of pay-as-you-go, the reduction or elimination of capital equipment, and shorter-term commitments. The cloud provider has to repeatedly earn the business. Even in the case of multi-year contracts, the risk is relatively low.

If an organization fails to decrease its travel, kill the video option. If the collaboration tools are too complex, switch to a different solution. If there's a sudden change in requirements to something like a new mobile computing form-factor, find a solution that embraces it. If APIs are too restrictive, find new ones. It is the provider that carries the brunt of the risk with its upfront commitment, build-out, and practice development. Many providers will fail, and when they do, the customer will exercise its newfound agility by swiftly moving to a new provider.

This is why the cloud isn't about total cost (see related). Many of us are willing to pay more for flexibility or reduced risk. The cloud offers the UC buyer comparable functionality with less long-term risk. In shipping, the terms FOB Destination and FOB Origin involve the same shipping cost covered by the same seller. The difference lies in who assumes the risk of loss during transit, and it's an important (valuable) distinction. This is why cloud TCO is so confusing. On the surface, the cloud customer may pay more, but as life hits-the-fan, the benefits, savings, and flexibility far outweigh the costs.

The cloud is a game changer. Don't get caught up in OPEX vs. CAPEX or any of the other distractions. The change is significant and can't be stopped--and the ramifications are huge.

Dave Michels is a Contributing Editor and Analyst at TalkingPointz.

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