Reduced Investments and Proportional Costs

Similar to a product wholesaler that purchases goods in bulk for lower price points, public cloud providers base their business model on the mass-acquisition of IT resources that are then made available to cloud consumers via attractively priced leasing packages. This opens the door for organizations to gain access to powerful infrastructure without having to purchase it themselves.

The most common economic rationale for investing in cloud-based IT resources is in the reduction or outright elimination of up-front IT investments, namely hardware and software purchases and ownership costs. A cloud’s Measured Usage characteristic represents a feature-set that allows measured operational expenditures (directly related to business performance) to replace anticipated capital expenditures. This is also referred to as proportional costs.

This elimination or minimization of up-front financial commitments allows enterprises to start small and accordingly increase IT resource allocation as required. Moreover, the reduction of up-front capital expenses allows for the capital to be redirected to the core business investment. In its most basic form, opportunities to decrease costs are derived from the deployment and operation of large-scale data centers by major cloud providers. Such data centers are commonly located in destinations where real estate, IT professionals, and network bandwidth can be obtained at lower costs, resulting in both capital and operational savings.

The same rationale applies to operating systems, middleware or platform software, and application software. Pooled IT resources are made available to and shared by multiple cloud consumers, resulting in increased or even maximum possible utilization. Operational costs and inefficiencies can be further reduced by applying proven practices and patterns for optimizing cloud architectures, their management and governance.

Common measurable benefits to cloud consumers include:

• On-demand access to pay-as-you-go computing resources on a short-term basis (such as processors by the hour), and the ability to release these computing resources when they are no longer needed.
• The perception of having unlimited computing resources that are available on demand, thereby reducing the need to prepare for provisioning.
• The ability to add or remove IT resources at a fine-grained level, such as modifying available storage disk space by single gigabyte increments.
• Abstraction of the infrastructure so applications are not locked into devices or locations and can be easily moved if needed.

For example, a company with sizable batch-centric tasks can complete them as quickly as their application software can scale. Using 100 servers for one hour costs the same as using one server for 100 hours. This “elasticity” of IT resources, achieved without requiring steep initial investments to create a large-scale computing infrastructure, can be extremely compelling.

Despite the ease with which many identify the financial benefits of cloud computing, the actual economics can be complex to calculate and assess. The decision to proceed with a cloud computing adoption strategy will involve much more than a simple comparison between the cost of leasing and the cost of purchasing. For example, the fi nancial benefits of dynamic scaling and the risk transference of both over-provisioning (under-utilization) and under-provisioning (over-utilization) must also be accounted for.