Switching to the Cloud: Economics of Cloud Financials

Intacct has been promoting a paper from respected ERP industry analyst Brian Sommer. Brian wrote “Economics of Cloud Financials” which covers the varieties, costs, and benefits of financial systems in the cloud, from both a customer and vendor perspective. The paper discusses financial systems that are delivered on-premises, hosted by a 3rd party, delivered via single-tenant cloud, and delivered via multi-tenant cloud. You can find the paper here. Naturally, there are some key takeaways from the paper I want to bring to your attention.


In previous entries in this series, I discussed the financial impact to your organization of moving your accounting system to the cloud (Outsourcing IT, TCO). However, not all clouds are created equal. Many vendors are hosting a legacy on-premises solution and marketing it as “cloud.” Brian’s analysis helps explain the key differences between a multi-tenant cloud and hosted deployment for your finance and accounting system.

Multi-tenant cloud solutions offer you the best economics and benefits for a variety of reasons (which Brian covers in the paper): low upfront costs, no responsibility for upgrades and maintenance, freedom for the IT department to focus on greater priorities, and more. I cover a few more benefits at the end of this blog entry.

By using a hosted deployment model, you also avoid the large upfront capital expenditures of buying and implementing hardware for an on-premises system. Yet hosted solutions are almost always single-tenant, meaning that you have your own version of the software and your own databases hosted by the service provider. This means that you are generally responsible for the timing and frequency of when you upgrade, and to maintain and patch the software – as well as the cost to do so. Using a hosted model is essentially outsourcing the purchase and maintenance of your hardware yet keeping most of the elements of an on-premises solution. It is not a true, multi-tenant cloud service.

Another deployment option that Brian covers is the “private cloud.” Generally, a private cloud is an on-premises solution that is configured to run as if it is on a cloud technology platform. Now, give me a second to step up onto this soapbox…ok…I’m up. This type of “private cloud” is not a true cloud. Not even close. The word “cloud” should not even be used to describe this model, because it is nothing more than accessing your application via a browser. Cloud is so much more than that. Don’t be fooled by marketers who tell you that their private cloud service is the same as moving to a multi-tenant cloud. They are lying to you. (Steps down from soapbox…takes a deep breath…continues typing).

There is some other great analysis in the paper, such as research on the business models of ERP vendors to illustrate how $100 of revenue is spent by the different types of vendors. Take note of how R&D spending differs among vendor types. Spoiler alert: multi-tenant vendors like Intacct spend R&D dollars more efficiently!

Brian concludes that multitenant cloud financial solutions, compared to on-premises and hosted solutions
  • Are more efficient from and R&D spend perspective.
  • Deliver functionality faster and with more frequency.
  • Produce fewer bug “surprises.”
When choosing a cloud financial system vendor, avoid choosing a company that has simply taken on-premises software and put it on their servers. And please, please don’t fall for something called “private cloud” when you really want the benefits of a multi-tenant cloud solution. Your best bet is to find a cloud vendor that efficiently deploys people, capital, and intellectual property towards delivering a best-in-class finance and accounting solution in a multi-tenant cloud environment.

Reasons why Intacct delivers the best economics to our customers:
  • Multi-tenant data storage reduces costs and errors, so we do not pass on the costs generated by single-tenant solutions to our customers.
  • Economies of scale allow Intacct to provide high system availability, backups, and disaster recovery at low cost.
  • The Intacct cloud is built with ample excess capacity, available to whichever customers need it most, whenever they need it.
  • The Intacct cloud provides controlled permissions and access, firewalls, scanning, and data encryption to protect your business at a scale far beyond what any one customer could afford.
Next time I will shift away from TCO and economics and get into a somewhat technical discussion of configuration vs. customization. It’s a topic that confuses a lot of people so I’m looking forward to your comments.

Be sure to follow me on Twitter (@markgervase) and Intacct on all our social media channels, including Facebook, Twitter, and LinkedIn. To network with other people interested in cloud financial applications, be sure to join the Intacct Cloud Accounting group and the CFOInsights group on LinkedIn.

Image courtesy of FreeDigitalPhotos.net

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