This past September we began discussing On-premise vs. Cloud where we shared our point of view that moving everything into the cloud should start with a hybrid approach. Most small businesses have already begun a hybrid approach if they use Office 365 or an online storage service like Dropbox. Our goal for this month’s article is to paint a picture of how a small business typically implements their network with on-premise technology and how they can begin a transition if it makes sense. We also want to continue outlining some great new tools available from Microsoft’s Azure cloud so you can get a general idea of what a public cloud offers outside of the more commonly discussed storage or server solutions.
Before we dive into the details we want to share a small history lesson and a perspective that is worth considering. Microsoft pioneered a successful niche for server software which they began offering to businesses back in the 90’s. This new technology, or NT as Microsoft called it, enabled businesses to extract great value from a network of computers such as shared filesystems and printers, improved security, centralized administrative control over individual workstations, etc. Roughly 20 years of development has gone into Windows server software, which is not a very long period of time if we look at the grand scheme of things. After 20 years of evolving business needs, we’re finally seeing mature server software and server hardware markets that provide reliable, comprehensive on-premise solutions. This reliability is a big factor in our point of view, so we think there is several reasons to pause and think critically about a cloud transition.
On the other end of the spectrum, the cloud has emerged with a storm of new public cloud providers who offer digital storage, application hosting, server virtualization and other services for businesses. Because there are so many different cloud service offerings, we have narrowed this article’s focus to storage services in order to illustrate how to think critically about a move to the cloud – analyzing server virtualization and hosting virtual firewalls is a whole different topic which we’ll discuss in future articles if there is interest. Our customers frequently ask about the most commonly known digital storage services in the cloud: OneDrive, Google Drive, Box, MediaFire, and iCloud.
In our view, these digital cloud storage offerings are a great value for sharing files easily among a group, but aren’t yet a good solution for small to mid-sized businesses who require security compliance, backups or system control. For example, we have seen several small businesses move the majority of their documents into Box or a similar service. This makes it easy for everyone to automatically sync changes with each other or share documents with vendors. We think this functionality is great and we recommend it. The misconception is that this data is being backed-up automatically with versioning and that there is a controlled environment with detection and response technology for data breach awareness or the ability for I.T. staff to help solve problems on the cloud if something breaks. This list could get quite lengthy if we listed all the pitfalls we’ve encountered.
Moving information or systems into the cloud has risk. For example, we recently saw a virus infect all folders and files on a computer, and then sync those infected files into the cloud account and corrupt all of the data. Luckily, the customer had an on-premise redundant system for secure on- and off-site backups which allowed us to restore the majority of the data. Digital storage services do not offer this level of granularity to protect your data and creates a high risk environment with less control. In other words, moving information to the cloud does not eliminate the need for I.T. planning, security, backups, control, etc. This transition can actually increase the amount of money a small business spends on I.T. when the data in question is business-critical. Our recommendation in this situation is to have a hybrid environment – make sure your servers and backups are properly maintained and your digital cloud service is used for collaboration and not as primary file storage.
Small businesses typically design their on-premise computer system (This is described on a very simple baseline scale) with an Internet connection, router, network switch, server, computers, and Wi-Fi. This design in our opinion is simple, affordable, and the most mature in terms of technology. Small businesses currently spend thousands of dollars per month to maintain this sort of environment and it’s the most well-known situation to control. We have noticed that the cost increases to maintain systems as we start to move each ‘component’ from our on-premise environment into the cloud in terms of I.T. maintenance services. This transition requires us to develop new business and technology best practices and processes to manage the change. What we are trying to explain is the cost for the business doesn’t necessarily go away when we move certain functionality into the cloud, it simply shifts responsibility in a new way that perhaps can cost the business more money as the cloud can consequently increase risk and less control.
We also think that it’s absolutely necessary to have an on-premise server if you have multiple computers on a network that share resources. Having an on-premise server is important to create and enforce rules for accessing resources such as file share and custom policies that control security, detection, response, and functionality. A server also gives I.T. command over backups and ‘line of business’ applications. A business can also continue to operate together as a team if the Internet goes down which happens on occasion. As simple as this network design appears, most of us know our computer system requires some level of ongoing maintenance. The less we maintain and offset into the cloud, the more it will cost and expose us to risk. The cloud is not as comprehensive as we would like it to be especially if we don’t ask our providers all the right questions. Unlike on-premise server software that has matured over 20 years, cloud solutions are in their infancy and still learning. Progress will happen fast, but it will take time.
From a CPA’s perspective, in some cases moving assets into the cloud can be appealing simply by changing capital expenses into operating expenses on the books. Cloud providers charge a monthly service fee and that makes budgeting and planning a little easier for small businesses so we know how much we spend on our cloud services each month. This monthly cost never goes away, but it helps prevent our business from having to spend money on upgrading equipment after X amount of years per the lifecycle, software licensing, or system maintenance for example. For small businesses this upfront monthly expense can be extremely appealing especially for start-ups comparatively to spending a large amount up front.
For some businesses, high reoccurring monthly cloud service fees can become very expensive especially if an entire server is hosted in the cloud or you have many employees. The software is constantly being upgraded to new versions that introduce bugs and the experience changes and puts downward pressure on employee productivity. Not only do we have to pay gobs of money for the resource to be live and active, we have to pay I.T. support to maintain it, and we inherit more risk. Investing in cap expense upfront for software and servers then amortizing this cost over a large period of time in addition to depreciating the equipment can be a more cost effective approach. Deductions on capital expenses can be extremely beneficial for tax purposes and the asset can be utilized for a longer life expectancy. Each circumstance in business is different but we have performed cost comparisons on-premise vs. cloud and over a 5 year time-frame we have found that it is less expensive to buy the equipment and software up-front than to lease it in the cloud. We have been able to save businesses thousands of dollars on total cost of ownership.
As we mentioned before, back in September we introduced a hybrid approach with Microsoft’s Azure cloud. Essentially, we can sync our on-premise system to the cloud then get access to all of Microsoft’s cloud features. This is an example of how a small business can utilize cloud services and continue to use their existing on-premise system and gain access to administrative tools. One of the features we love in Azure is the AD Connect Health tool that offers three new key views to help I.T. staff maintain the server environment better. This is something we are actively setting up for our customers to give Digux an additional layer of visibility into the systems to help us better maintain them especially from a security standpoint as this is our top priority so it was worth mentioning.
The alerts section provides us insight into issues requiring an administrator’s attention such as certificate problems, connectivity to the domain controller, malfunctions with services, or notifications about security issues or missing updates.
The usage analytics section provides insight into login activity based on security audits. Basically, we can see successful logins by applications, network location, and the authentication method. We also can see unique usage counts for these applications which can be extremely helpful in terms of knowing what is happening on a computer network for security purposes.
Lastly having a simple aggregated view of key performance counters via the performance data view is extremely helpful understanding CPU, memory, latency, and essentially balancing issues within our environment.
Bringing together these health and usage statistics enables us to have a better view under the hood of our systems and provides the ability for us to solve issues before they become more challenging and time consuming to recover from.
Depending on your business goals, line of business applications, and company policies, or some other reason, these advancements may be outside of the scope of what your business is trying to accomplish. However, as time presses forward and technology advances it will be a choice worth considering to keep your business competitive in an ever changing and fast pace society. To request more information about building a hybrid approach please feel free to email email@example.com. Thanks again for being a loyal reader of our Predictably Better newsletter. We’ll be back next month!