Financial Flops: 5 Reasons Solution Providers Lose Money In The Cloud10:00 AM EST Fri. Oct. 04, 2013
For the past four years, Cloud Cruiser has been working to develop programs and advise solution providers that are making the financial switch to the cloud, both for themselves and their clients. They have already secured a collection of big-name partners for their cloud financial management software, such as Cisco, Hewlett-Packard, Microsoft and VMware.
In an interview with CRN, Cloud Cruiser's Vice President of Strategy Nick van der Zweep shared some of the common financial mistakes he has seen VARs and enterprises make as they offered the cloud to their customers as part of their packages.
One of the first mistakes that van der Zweep said he often sees is that companies are still living in a "world of fixed costs," even though cloud means business is more flexible than ever. He said many of the solution providers he works with still assess their costs through spreadsheets on a semiyearly, or even yearly, basis, when cloud costs are constantly changing around them. He said it is important for businesses to update their costs more often, even daily, to better reflect profitability and usage.
Van der Zweep said he sees many of the companies he works with struggling to figure out a billing method for the cloud as it forces them to apply their old static billing method to a usage-based system.
"Excel-based billing mechanisms of the past don't cut it," van der Zweep said. "You need something a lot more nimble."
The effect of missing the boat on fixed costs and billing means that solution providers often don't know how to price their products to both make a profit and remain competitive in the marketplace. van der Zweep compared the new market to airplane price offers, which change all the time based on region and time of day. VARs need to know the usage, their costs, and combine those factors to find out the price to make cloud profitable.
"If you price it wrong, and that’s what I've seen some of these people do, then they're completely unprofitable in the marketplace," van der Zweep said.
Van der Zweep said the advent of shadow IT is taking some budgetary control away from the CFO and is making it hard for businesses to keep track of cloud costs. All that the CFO sees is a credit card statement, he said, which doesn't separate usage from other business costs. He said it is important for companies to use software to help track shadow IT to prevent budget overruns.
One of the major avoidable costs for companies is making sure things are turned off when no longer in use, for example after a development project is completed, van der Zweep said. The problem is that most companies don't have a good way to keep an eye on and analyze what they are using and what is sitting idle. The bottom line is to get back to basics, van der Zweep said, by managing your profitability through managing your services.