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The Woodshed

Why is now the time to move away from an on-premises software solution?

At AxeTrading, we look to encourage customers to see and understand the benefits of a hosted or managed cloud based software solution. Let’s look at the advantages, motivations, and added value of migrating an existing on-premise solution to a cloud hosted version.

We will look to explore four areas to show the value of cloud:

  • Cost
  • Pricing
  • Functionality
  • Ways of work

Cost

We are going to look at costs of a cloud hosted solution vs the alternatives.

Infrastructure costs

Looking at an on premises hosted solution, the owner would have to pay out initially for the databases and infrastructure.  Also, on-going upkeep and upgrade and replacement. Added to this the cost of hosting the infrastructure and theses can mount up.

There is a floor to these costs as you will need minimal set up and upkeep which can’t be changed regardless of how little you may utilise the software.

Alternatively, there is the cloud option.  With immediate savings by removing the floor, as you can scale up and down your costings based on use. A cloud provider can get economies of scale by hosting multiple clients on a single site. With the containerisation of products and simple optimisation of usage, sharing databases software and technology across clients can also offer large savings.

Cloud hosting, when done with the most optimised solutions are going to be where the largest savings can be found.

Custom code

One of the big selling points of the earlier on-premise enterprise solutions was that they were sold as toolbox of functionality to be assembled however the user wished. This gave the larger institutions a chance to buy functionality and tooling then go away and custom integrate how they saw best. With an ecosystem of multi-vendor solutions, they could tweak how the systems are run and connected.

Fast-forward 10-15 years and these clients have very quickly realised these advantages are not all they are cracked up to be. The upkeep of custom set ups, solutions and connectivity can become very expensive to maintain over the long term.

Each time you need to upgrade any aspect of the IT architecture, all the connectivity manually put it needs to be tested and, in some case, also upgraded.

Ways of working and use of the system might be bespoke and unique to the customer. Any changes on the vendor side might not take these uses cases into account so will also need to be manually checked on every change and up kept.

If knowledge transfer and documentation is not maintained well, there is going to be an on-going risk for key person concentration of knowledge.  Cloud migration can help to reduce and sometimes remove all these risks.

A migration to a cloud solution, will reduce custom set up, remove a lot of custom code and ease future migrations. With the aim to standardise the setup, solution and connectivity, the vendor aims to target a continues upgrade model for a cloud-based solution, allowing the user to take advantages of the new setup from day one.

Support costs

With both infrastructure and custom code set up for more traditional on-premise type solutions there is a sizable on-going support cost. Hosting solutions, you will need to employ personal to service and run the infrastructure. If you need to put in and maintain custom code, this will also increase personnel costs.

If you don’t have to host a solution you don’t need to employee any one to maintain it. If you don’t write any custom code, there is no one needed to write it or maintain it.

Costing is generally seen in two envelopes, CAPX and OPEX. With cloud hosting, you can see a reduction of both envelopes of costing.

Pricing

For cloud hosting, the more common pricing model seen today structures around “X”aaS models. Be it SaaS, IaaS, PaaS…etc Where the usage model is pay as you go.

This doesn’t mean there are no alternatives. You tend to find with cloud hosting a more flexible pricing model which can scale to your uses and needs. Or can give certainty and transparency to future pricing.

Further to explore would be alternative pricing structures:

  • Traditional maintenance
    • With an initial up-front cost followed by annal much smaller recuring costs and/or maintenance costs
    • Allows for better use of CAPX budget vs OPEX
    • Higher year 1 revenues
    • BUT limited revenue security
    • Licence linked to soft wear version
  • Subscription pricing
    • Fixed term contracts with equal payments paid annually for fixed products/licence
    • Move to an OPEX budget
    • Spread revenues out over time, more consistent
    • Versioning not linked to licence
    • Cant buy the product outright
  • “X”aaS pricing
    • A pay as you go model with flexibility in both usage and pricing
    • Usage protection, scales up and down
    • Can budget based on profitability
    • BUT less certainty around spend
    • Normally shorter minimum term leading a less sticky model

Functionality

Motivation to move to cloud isn’t always about cost. Looking at value proposition the flip side to cost is revenue. The best way to help drive increased revenue is around offering more for your customers. Vendors can use this carrot to entice clients to move to the latest version of software from a functionality point of view.

As vendors make a step change from on-premise versions of their software to cloud versions, they will target the later only for the latest functionality. Clients wanting or needing the latest version or ways of working will strongly be encouraged to move to cloud versions to get the functionality.

A lot of vendors will be on a path of upgrading existing software to be cloud enabled instead of bringing new products to market in new areas. Vendors will be vulnerable to early adopters of new cloud versions having a significant sway over cloud versions of the product roadmap.

Being an earlier adaptor of cloud solution with a vendor which is relativity new to the space can have some risk involved. But by being a potential referenceable client for them you can use that leverage to drive the functionality in the latest version of product you want.

For UI/UX there is a lot of difference, old on-prem version of software don’t look very good. This is usually because software vendors have focused on feature functions as opposed to UI/UX for these older versions. Older versions of the solutions have a lot of business logic embedded in the UI/UX as opposed to acting as thin client layers.

The migration to cloud has given a chance for vendors to start again on UI/UX. Significantly updating the look and feel as well as leveraging the front ends as thin client. Leaving business logic in the back end, helping to better future proof the UI/UX.

Ways of working

This final section on why move to cloud is going to focus on BAU process and how the benefits will be felt. We have looked, at one time cost savings and changes, in this section we will look at the impacts across the whole customer journey.

Above we talk about the custom code and the enablement of cloud solutions to reduce or remove it. We can now look at what the cloud version does to enable this with standard ways of working.

If you have a solution set up and it has standard configurations and out of the box interrogations. Not only will you reduce the need for custom code, but you can install and set up from scratch a lot quicker.

The time to market for cloud-based software will be a lot quicker along with upgrade cycles. If the setup is standard, hosted on the cloud, and installed quickly then if will follow future upgrades will go a lot quicker.

Here the ongoing benefits of cloud and ways of working can really start to play dividend. If upgrade is quicker, you can afford and will want to upgrade more often as well. This will mean newer functionality, more often, with the ability to stay firmly up to date with security and regulation. Enabling a reduction in the risk burden.

With speed of change you can make, it isn’t just functionality, security and regulation you can keep up to date with, it is also market standards ways of working. More turnkey solutions will allow you stay at the cutting edge for longer.

In summary, for better ways of working, the compromise by standardising and moving to market best practice gives you great advantages in terms of speed, agility and cutting edge functionality by being in cloud.

 

 

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