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Low price points are a boost to cloud computing business

Marquis Cote, in Ottawa.

Dave Chan/dave chan The Globe and Mail

Three years ago, Michael Rodger was asked to find a new e-mail platform for Delta Hotels Ltd. Whatever he chose had to meet one main criteria: it had to be cheap.

Mr. Rodger, the company's director of technology, considered the Microsoft Exchange Platform but found it too expensive. He then turned his sights to Google, which offered corporate accounts for $50 per user, per year.

"I had thought they meant $50 per month, not per year," says Mr. Rodger, adding that Google's offerings were 25 per cent less than Microsoft's. "I couldn't wrap my head around that."

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The price difference is due to the fact that Google hosts its e-mail in the cloud. The search giant is responsible for upgrading its software; it houses data on its own servers; and no internal network is required to access its programs. (Microsoft now has a cloud option, which wasn't available when Mr. Rodger was looking.)

Several surveys and reports have shown that certain cloud-based solutions can save companies significant money. A 2009 report by Forrester Research concluded that "on-premises" e-mail, where data is stored on internal servers and run over a company network, costs $25.18 per user per month for a company with 15,000 employees. Google's e-mail offerings cost only $8.47 per user, per month.

"If you can take advantage of the economies of scale then absolutely the cloud can deliver cost savings," says James Staten, vice-president and principal analyst with Forrester Research.

Most companies, he says, can reduce their information technology costs by about 20 per cent to 30 per cent when they move to the cloud, though he's seen some organizations save up to 90 per cent on specific projects that have gone online.

Delta's switch to the cloud also has allowed it to give all 8,000 employees an e-mail address, which it wasn't able to do before.

For $50 a year, the company also has access to other Google applications, such as Google Docs, Google Spreadsheets and Gmail Chat. These programs can be used by anyone, so collaboration has increased and time spent solving the same problems across the chain has been reduced.

"Before, our managers wouldn't collaborate in any way shape or form with another person in the same role in another city," Mr. Rodger says. "Now a front office manager in Vancouver can ask colleagues across the company how to handle a situation."

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Delta is also saving money on IT costs. Since data is stored somewhere else and another company is responsible for upgrades and maintenance, they've been able to reduce the number of people dedicated to e-mail from three to "half a body," Mr. Rodger says.

These low price points aren't just a boon to big business. Small companies are able to run robust programs for next to nothing.

Marquis Côté, founder and managing partner with Ottawa-based digitalOttawa Inc., uses three cloud-based programs: Google for e-mail and collaboration, FreshBooks for invoicing and accounting and Dropbox to share files among his eight staff members and 40 freelancers.

These three programs are essential for running his company, he says, and he's spending only about $600 a year.

"That's nothing," he says. "For that much I can run my entire company."

Before he started digitalOttawa in 2004, Mr. Côté had run Borealis Network Inc., a business incubator that offered everything from office space and website hosting to small- and medium-sized business. He says he used to spend $5,000 a month on the things he's paying almost pennies for now.

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"The amount of money you save is incredible," he says. "I'd have to pay thousands a year to operate my company, but now I can do it for under $1,000."

While most companies can save money by going to the cloud, not every business will be able to cut costs.

Albert Silverman, a senior managing director and chief architect with PricewaterhouseCoopers, says the cloud will save a business money only if it adheres to three things.

First, it can't be something people use all day, every day.

Cloud companies charge clients two ways – per user or for usage. If it's something a business needs only three months of the year, then the costs will be significantly cheaper than alternatives. If it's used all the time, the usage costs could add up, Mr. Silverman says.

If it's a pay-per-user system, consider giving access only to the people who need it, he says. The more people who access the program, the more it will cost.

Secondly, Mr. Silverman explains that the cloud is less costly thanks to economies of scale. Google's programs are so cheap because millions of people use them and no one is allowed to customize them.

Customization can kill cloud savings, Mr. Silverman says. It's expensive for a software provider to change a feature for one company.

Finally, how quickly a company needs new resources can also have an affect on cost. If a business needs a new accounting system in three months, it'll be faster to go to the cloud than wait for a busy IT department to develop a new system.

Right now, Delta is happy with the cloud applications it has. Mr. Rodger wants to wait until security improves before putting sensitive accounting and payroll information into the cloud, but he knows it'll happen one day.

When it is time to find new systems for these other tasks, he'll again look for the most affordable alternatives. "I would definitely look to the cloud for cost savings," he says. "When something viable presents itself we'll move in heartbeat."

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