Is Cloud Cheaper?


To know if Cloud is cheaper we’ll define the various types of infrastructure we see in our engagements. Cloud isn’t for everyone but by the end of this article you’ll be able to size up your environment and see if you can actually save money by moving.

Let’s start by defining Cloud as it relates to servers and what was known as managed hosting:

Cloud computing started when server virtualization went mainstream. Virtualization allows servers to be sliced into smaller operating system instances. Each instance is a separate server in all its aspects. A firm seeking “hosting” could now rent part of a server rather than the whole. This allowed servers to deliver slices of computing power to many tenants each with a different function.  This is now known as public cloud.

So in the legacy managed hosting model your costing looked like this:

infrastructure + hardware + licensing + management + margin = hosting cost

Here’s how that formula looks like when a provider can host 20 clients from a single server:

infrastructure + hardware  x (1/20) + licensing + management + margin = hosting cost

So in the hardware component we divided that cost by 20 in the formula above, but we shouldn’t stop there. Software firms couldn’t charge you for a whole license in this case either. Service provider licensing became available and assessed a lower cost for a smaller computing instances.

Management costs dropped as virtualization allowed better orchestration of instances thus easing management of these services. This makes the hosting formula look even better.

Let’s pull this together. Cloud allows firms to buy smaller increments of compute with no long term commitment. Add to that the ongoing costs of having a full time Network Operations Center, mature processes and tight security makes it a good value for many businesses.

So the big question is, will my firm save money by moving to the cloud? Well that depends.

Which Example Does your Company Fit into?

Example A:
Your application consumes light CPU and RAM and doesn’t need a full server. Or, your application can scale horizontally. (Horizonal scaling means you have small nodes that are easy to load balance on the web, application and database layer).

Yes, in this case you will save money because you can buy access to a part of a server and pay for only what you use. The alternative would be to buy way more than what was actually needed.

Example B:
You have an entire array of servers that run your enterprise. Perhaps messaging, ERP, CRM and custom applications.  It’s several servers along with management responsibility.

The answer here? Maybe you’ll save money. You are in need of the computing power of full servers for the essential applications. Some of your lighter used applications can live on smaller, virtual instances. You CAN save money on backups and mass storage if your needs don’t need more than 50TB. If your storage is less than 50TB you can use an economy of scale that the service provider has already built. You’ll save money and you’ve shifted from capital expense to operation expense. Outsourcing the infrastructure saves hard earned capital since you are renting rather than buying.

Example C:
You are building a new application with an expected 1 million users but you can’t be sure until it actually happens.

Yes, you’ll save money. The cloud will allow you to avoid “building to peak” which is building to the highest level of users expected. The Dot Com boom was a good example of building to peak and why so many companies ran out of cash so fast. So rather than building to peak, you can scale up an environment as your user base grows. With orchestration this is possible in house  albeit with large CapEx costs and a lengthy development effort.

Example D:
Your application scales vertically. This means your application is hard to load balance at the application and database layers. In other words, your only recourse is to use more powerful single instances of hardware.

No, you’ll actually end up spending more in the cloud for this type of environment. If you need a single instance that requires 64GB of RAM and 8 processors then the remaining capacity of that server cannot be sold to other firms as you’ve taken most of it. The costs between cloud, dedicated servers and doing it yourself won’t vary that much so it will boil down to other factors.

Example E:

You have a massive IT infrastructure. Your server count is in the 100’s and you use a lot of storage.

Save in the cloud? No, you’ll pay more for cloud for this type of environment. The economies of scale that a service provider could offer you will be the same as you’ve already built. Since they are a business, they’ll want a margin so they can be profitable as well. Paying more isn’t always a bad thing. Some firms make the decision to outsource infrastructure to focus on their core expertise. Netflix is a great example of this.

A Final Word

In a perfect world, the cloud would always allow you to take advantage of someone’s economy of scale. So if a service provider has gone out to develop a storage offering, chances are they can sell space cheaper than you could for yourself. Once you need so much that you dominate the entire array, you’ll find that it becomes cheaper to do it yourself.

How did we do? I hope we were able to clear up whether the cloud will actually save you money once and for all. There are always exceptions to what I’ve written above but these are the common examples we see daily. I recently had a client that was our example D above, I worked with them to remove their database as a bottleneck and their options are far better now. If your interested in some ideas, schedule a free consultation.

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