Risks of Cloud Computing for Business: Cloud Computing Issues and Challenges

There are often many risks discussed when utilizing cloud computing applications, though a large majority of focuses on technical issues rather than a clear business imperative. In this article we look at the tangible issues and challenges faced by businesses when using cloud computing.

Key Risks of Cloud Computing for Business

Cloud computing has grown over the years to encompass offsite infrastructure and Software as a Service, allowing companies to avoid upfront costs of operating technology and staffing a team of developers. Organization should be careful not to be swept off with the hype with cloud computing and be ready to tackle the risks of cloud computing.

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Courtesy of BagoGames with reserved rights.
Many companies have moved to cloud computing services for functions like e-mail, accounting, customer relationship management, human resources planning, and more.  For referential purposes cloud computing services, cloud services, will refer to cloud applications or Software as a Service (SaaS) during our discussion here on the topic.
In many cases, it makes financial sense to offload all the overhead of managing software, on to a cloud vendor. At Mindfield Consulting, we rely on Cloud-based services daily. However, Cloud-based services comes with hidden risks that could interrupt or even irreparably damage your business. Here are the top risks facing organizations when considering or currently utilizing cloud computer for software as a service.
In this article, we cover three different risks and how you could protect yourself from them.

1 – Internet Service Degradation/Interruption

It might go without saying, but when you switch to cloud-based services, you are increasing your reliance on your Internet connection at all your business locations to access those services. Internet service outages could force you to suspend operations if your business operations rely on cloud-based services.
The prominence of this issue is illustrated by the fact that the largest ISPs in Canada took top 10 spots in terms of the last 4 week’s reported outages on CanadianOutage.com: with most of the telecoms occupying top 5 places (source)
Below are visualized estimates of the most recent reports of internet service issues across major ISPs in Canada. What is noteworthy that even though internet may still be available, having insufficient throughput can still impair business operations if there is a strong reliance on your software vendor’s cloud computing service.

Garner Estimates that Network Downtime can Cost Companies $300,000/hour on average

In a published study from a Gartner report, a network outage costed anywhere from $140,000 to $540,000 per hour (source). These loses are consequential for any organization, this is a clear indication of the scale of damage when the internet “lights” go out. An average outage that lasts more than 2 hours, can cost a business anywhere from $280,000-$1,080,000. These costs may be multiplied further given dependencies on cloud application providers.

2- Cloud Computing Service Degradation/Interruption: the Myth of 99.9% Uptime

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Photo courtesy of Stefan S with some rights reserved.

Similar to the situation with the Internet Service, your business is also at the mercy of degradation and outages with the cloud application. While many cloud-service providers will have a stated SLA, the compensation for missing those SLAs are often limited to a pro-rated discount of your subscription charges. This doesn’t quite reflect the cost of lost business if you had to shut down operations for any length of time due to these interruptions. Particularly if loses are in the range of  what Gartner reports between $280,000-&1,080,000.

This is particularly meddlesome if you are using vendor cloud application to deliver key business operations like receiving orders, or completing a service or product delivery. All of which can impact revenue and receivables collection cycles. Here is a general industry average on cloud service outage statistics:
  1. On average there are 12 instances of outages per year (source)
  2. Each outage can require 1-2 hours to repair for non-critical scenarios (source)
  3. An outage if critical may require up to 3 hours to resolve (source)
  4. As a result of these statistics cloud application vendors often fail to meet their 99.9% uptime SLAs  (source)

3 – Cloud Computing Service Provider Closes Down: “Half of all SaaS Companies will fail”

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By Pat Loika (Dragon*Con 2013: Parade) [CC BY 2.0 http://creativecommons.org/licenses/by/2.0, via Wikimedia Commons

In 2017 David Cancel of Drift noted that half of SaaS service will go out of business for being in-ward focused (source).

Sadly, some cloud service providers, even good ones, do go bust. With their demise also follows your company’s data and your operations. If say all your customer data went down with a CRM service that goes bust, your business could easily go down with it. This is because your key interaction and customer contact information would be lost, while expending time of business development staff to recuperate.
The outcome of this event would be the reverting to manual process with significant risks to customer data, heightened operational costs, and decreased customer service and turn around times. Though these instances can be softened by early notices by a vendor, this often isn’t the the norm

Over 100 Examples of Start-up Companies Going Belly Up

CBInsights reports 121 companies that have gone out of business some of which were SaaS companies and should serve as a stark warning of over-reliance or early-stage SaaS vendors for businesses who may be considering a  strategy with cloud computing services (source). Though these examples are mainly due to poor economic performance there are also cases of security breaches that have led to debilitating damages in which the cloud services could not recover from (source). This left client’s operations up in the air as a key piece of their value chain was now reverted back to manual processes. Here are some examples of companies that flopped in the SaaS space

  1. Codespaces was hacked and never recovered – hackers found their way in though infrastructure control panels and was extorted for an undisclosed sum, despite effort to reclaim control there were too many backdoors already opened
  2. Nirvanix gave 6 weeks notice for customer data – though Nirvanix didn’t disclose why they went out of business they gave notice to customers to quickly export their data before exiting
  3. Saaspire couldn’t stabilize revenue sources to focus on product – in a candidate reflection on medium one of the partners reflected on the challenge of managing revenues that took away from product development (source)

Mitigating the Risks of Cloud Computing for Business

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The following are Mindfield’s top recommendations to managing risks of cloud computing, though it advised that enterprise work with a trusted business advisor to determine exact requirements.
  1. Be aware and commit to mitigation – Just being aware of these risks is a first step to prevention. Make an assessment to see if your business can handle interruptions to these services and create workaround procedures in anticipation of such outages. Have a fallback Internet Service Provider, if necessary. Backup your cloud data locally so that it can be used for your temporary operations. Prepare a temporary operations plan for your team.
  2. Rely on reputable market-leading companies – preferably with diversified revenue streams (ie, cloud-service isn’t their only gig). While this may come at premium cost, it could help lessen the probability of the service going bust and taking your company down with it.
  3. Don’t rely on cloud-based services for your core operations or your mission-critical data– Consider using on-premise or custom solutions that you own and operate outright.
  4. Consider SLAs with telecom providers – given the interconnected nature of your business, determine if there are key business processes that rely on the internet and stipulate SLAs with telecom providers that can serve as an insurance to costs incurred as part of ISP outages.
Client should be cautious when utilizing cloud application  to avoid and mitigate these catastrophic situations. Our discussion on the topic of cloud application was developed to better equipped clients to begin the process of safe guarding their mission critical data and processes.

Derisk and Own Your Value Chain

Enterprises no longer are burdened with managing vast and costly technology infrastructure with proven and tested technologies. Though there are still risks in SaaS providers and their long-term viability, companies can now develop their own products and software independently using established cloud platforms rather than over-rely on applications. Mindfield Consulting helps companies create mission critical technologies and teams to operate and manage the value you offer customers at every step of the way.

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