Cloud Economics

Last updated: February 1, 2021

Two key features of cloud are 1) someone else owns and maintains the computing infrastructure and, 2) you only pay for the computing power and storage you use.

Cloud providers make use of economies of scale by providing access to shared infrastructure to many clients, this helps them offer a unit cost lower than most organizations can achieve when considering total cost of infrastructure ownership. Also, as a client this means organizations don’t have to purchase and maintain infrastructure capable of handling peak use or carry excess storage capacity, instead one can pay only for what is needed as it is needed.

Will moving to cloud save money?

Saving money by using cloud services is possible; however, this isn’t always the case and most often not the most significant benefit. Realizing savings requires effective selection of solution candidates, ongoing management, upfront investment and a mid- to long-term horizon for return on investment. 

How to make the economics work:

Right-sized Provisioning: Cost optimization requires purchasing an appropriate service level – inefficiency occurs when users either over-purchase services relative to their needs, or under-purchase and incur higher unit costs as they consume more than allowed in their service level agreement.

Active Management: As multiple users can use on-demand compute and storage services, ongoing management is required to ensure individual users are right-sizing services and not leaving paid-for capacity unused.

Plan for Storage Access: Cloud storage prices change based on how often storage is accessed - this means users can either pay too much for by purchasing storage with easy access when not needed or incurring additional costs by exceeding access limits.

Prepare for Troubleshooting: Level of system visibility can be lower for cloud services than on premise hosting; be prepared for a higher resource requirement for troubleshooting.

Select Suitable Migration Candidates: Contracted resources are typically required to support migration; consider architecture and infrastructure needs/complexity – the more spent on migration the longer the time-to-ROI; further, if solutions use shared infrastructure, a reduction in footprint is not possible unless all connected solutions migrate.

Account for Ancillary Costs: IP addresses, domain resilience and data transfers into, out of and between servers, data backup requirements need to be considered when preparing budgets.

Build Capacity: Developing solutions using cloud and onboarding legacy solutions requires a specialized technical skill set; developing this capacity internally provides long-term financial benefits as it reduces reliance on contracted resources; however, this comes with a short- to mid-term opportunity cost related to time and training investment.