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.
1 – Internet Service Degradation/Interruption
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
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.
- On average there are 12 instances of outages per year (source)
- Each outage can require 1-2 hours to repair for non-critical scenarios (source)
- An outage if critical may require up to 3 hours to resolve (source)
- 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”
In 2017 David Cancel of Drift noted that half of SaaS service will go out of business for being in-ward focused (source).
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
- 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
- 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
- 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
- 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.
- 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.
- 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.
- 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.
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.