ValuAdder Business Valuation Blog

You may have noticed the current frenzy over cloud computing. Some pundits tout cloud services as if it was a promise of ultimate salvation: the reduced cost of software ownership, upgrades that snap in magically, and ability to access the service on any web browser enabled device.

Sounds too good to be true? Unfortunately, many users move into the cloud without understanding the major security implications. Security problems have plagued cloud software and continue to be the key stumbling block to its adoption. Indeed, there are a number of serious concerns.

Customer data loss

If you followed the news, you may recall the spectacular customer data losses suffered by major retailers. Private customer information, including credit card data, have been lost affecting millions of people. Cloud based software acts like a magnet for cyber criminals. This is because such software vendors are known to store highly valuable customer information that crooks can exploit in a number of ways.

Consider a cloud service that offers business valuation online. Unsuspecting customers enter business critical information into a system controlled by the software vendor. Such information is a veritable gold mine for the criminals. Critical business intelligence can be gathered about yourself or your business.

Threats may come from outside hackers or malicious insiders that have access to valuable customer information.Your business information can be sold to the highest bidder, including your competitors.

Hardly the outcome any business person would expect to get by paying and using a software service.

Your business information is for sale – by the cloud software vendor

As if theft of your business information were not enough, another danger lurks where you least expect it. Yes, you guessed it, your cloud service provider is probably making a buck by selling your business information you have provided when using the software.

Be sure to check the online privacy policies published by the cloud software vendors. You would be shocked to find that many of these vendors openly admit that they intend to gather, use, and sell your business information.

Critical business information, such as tax returns, business financials, company management and business plans are highly valuable information. Your cloud vendor stands to make a nice profit by marketing this information right behind your back.

Many cloud vendors have a second line of business that consists of providing so-called business intelligence information. You read it right, that’s the information the cloud vendor gathers from its customers, that is then repackaged and offered for sale.

Business valuations commonly disclose business critical information that is shared on a confidential basis with investors, business partners, lenders, accountants or attorneys. Do not expect the attorney-client privilege to apply to any business information you enter into the cloud software vendor system.

Squeezed out of the cloud

When you install a software app on your computer, you expect a level of performance your system can provide. Unfortunately, this does not extend to the cloud services.

As your vendor signs up more customers, it does not follow that they invest in expanding their computing infrastructure. In addition, many cloud services do not scale well with increased customer demand. The result is progressive loss of performance.

Imagine you have a rush project to complete using the cloud software. If your vendor systems get overloaded, you are out of luck as the information highway turns into a sudden rush hour gridlock.

Denial of service

Cloud computing is a darling of online criminals. Shutting down cloud services is their favorite game. What does it mean to you? A sudden loss of access to software just when you need it most. This is quite a bit more than an annoyance of having to reboot your computer to get things going again. To make things worse, the denial of service attack may impair your service provider systems without shutting them down. You may well be billed for the use of resources consumed during the attack.

Do your due diligence

Despite all the buzz, cloud software is not a good fit for business valuation. Software apps installed directly on your computers deliver the performance you need, when you need it, while not exposing you to recurring subscription costs or the risks of losing business data.

As with any fad, some people may jump on the cloud software bandwagon without thinking through the implications. If you don’t understand the cloud provider’s service environment and protections you have no idea what to expect should data loss occur, your account be compromised by hackers, or your business or client critical information wind up in the wrong hands.

Check out the contract before you sign up. Odds are you may be expecting far more than the cloud software vendor is willing to provide. The business data you type in may be used by the cloud software provider in ways you do not approve.

Read the fine print, especially when it concerns loss of business data and liability that results. Is there an indemnity clause that protects you?

You may find that the recurring subscription costs of using the cloud service coupled with the risk of losing business or client data far outweigh the benefits.