Why offshore clouds can be a false economy

There’s a lot to be said for moving as much computing as possible to the cloud.

You’ve probably heard the arguments before. Cloud can be relatively cheap, although this is often overstated. I’ve heard of cases where companies have slashed IT budgets by as much as 75 percent after moving but that's not always the whole story.

Cloud is efficient. Consolidation means using less electricity and other resources.

Using cloud is easier than maintaining servers and other technology infrastructure. As the sales pitch goes: it means companies can make better use of resources and focus on what they do best.

Cloud moves costs from capital expenditure to operational expenditure, which accountants love.

On the whole cloud computing can be safer and more reliable than doing it yourself. Experts run cloud data centres. Intense competition means they can, in theory at least, focus on quality as well as price.

Economies of scale

One reason cloud computing is efficient is that service providers get economies of scale that you could never make. There’s less scope for these economies in a small country like New Zealand.

Understandably, many companies reason they’ll get bigger savings buying cloud services from overseas giants where the service providers get larger economies of scale. The hyperscalers.

However, New Zealanders don’t always get the full benefit of those savings.

The financial cost of sending data across the Tasman or the Pacific is almost negligible compared with the possible savings from overseas clouds.

Latency

Remote servers can have latency issues. It takes time for data to travel across the Tasman, through servers and then over to Singapore even back across the Pacific to the USA. A microsecond here or there might not seem much, but if workers struggling with Software-as-a-Service applications have to pause after every keystroke this quickly adds up to lost productivity.

Long-haul connections make life even harder for applications using real-time data. Remember latency was one of the problems the aborted Pacific Fibre project aimed to address.

Consider security. You have a reasonably good chance of knowing what oversight there is for a NZ cloud host – things are not so clear-cut overseas. You’ll need to keep on your toes staying up to date with the issues where-ever your data is located.

Foreign litigation

If something goes wrong with an overseas cloud any dispute will almost certainly be subject to the local law in the host country. Are you ready to hire lawyers in Manhattan or London? Does your budget make provision for that?

Patriot Act fears

There are other issues to do with personal data stored overseas. Some foreign governments have data sovereignty laws which effectively allow them to treat data as if it belongs to their nation.

Last year Australian legal firm Freshfields Bruckhaus Derringer warned that, thanks to the US Patriot Act, data stored in an American cloud has a far higher chance of being accessed by an US law enforcement agency, regardless of who owns the data. New Zealand, however, has strict laws about how private data can be handled.

This issue is one reason the Australian Federal Government has cracked down on its agencies using offshore clouds.

Hidden transition costs

Finally, the transition costs of moving to an offshore cloud are far from clear-cut. What looks like a cheaper ongoing fee may come at the expense of a sizable initial cost and other gotchas. Overseas cloud vendors are not necessarily subject to the same price and contract transparency rules as local providers.