Is cloud computing more expensive than alternatives?

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This question seems to come up every year.

Yesterday, there was a thread on Twitter that again raised the question of whether public cloud is cheaper than the alternatives. I wrote about this a few years ago in the post ‘Is public cloud more or less expensive than corporate data center options?

Yesterday’s Twitter thread was originally based on a good post by Matt Asay in InfoWorld about how ‘Cloud costs a lot of money’ by addressing cloud providers and their investment, not the consumer side. The thread quickly shifted to focus on the consumer side of the equation. So, let’s break it down.

Business case fundamentals for cloud

Let’s use a tried-and-true rent versus own analogy that most can relate to in order to do the math…vehicles. Traditional corporate data centers and their related infrastructure are represented by a vehicle that we might buy. Cloud is represented by rental cars.

When a vehicle is purchased, it has a fixed cost. When a vehicle is rented, it has a variable cost that depends on the size of vehicle, length of rental, etc. Let’s assume the vehicle is the same as the one purchased but rented instead.

For the purposes of this discussion, let us assume that the vehicles are exactly the same make, model and year. When one purchases a vehicle, there is the cost of the vehicle plus maintenance. When one rents a vehicle, those costs are bundled together.

Own: $35,000 ($30,000 purchase + $1,000/yr maintenance) or ~$583/mo.

Rent: $40/day or $1,200/mo.

The problem is that many are still focused on the $40/day as being less expensive than $35,000. This is what early cloud marketing programmed into our brains. Unfortunately, this is comparing apples and oranges. When you net out the math, renting is far more expensive ($583/mo vs $1,200/mo). This is based on classic on-demand pricing.

Beyond pricing companies may prefer to focus spending via operational expenditures (OpEx) versus capital expenditures (CapEx). The latter often shows up as a single line item in a department’s annual budget, but eventually gets depreciated over a set period based on its useful life. This is a much more involved conversation that needs to consider the company’s financial strategy along with their cash flow statement and balance sheet.

Understanding the variables

So, does this mean that cloud is not a viable solution for enterprises because the fundamental on-demand offering is more expensive? In a word, no. There are additional variables to considering before venturing down this path.

Reserved instances provide a more predictable outcome for both services and pricing. Plus, they tend to be significantly less expensive than their on-demand alternatives. For example, Amazon EC2 Reserved Instances can provide up to 72% discount over on-demand pricing. The downside? You are committing to 1-3 years of that service. Think of it like a hybrid approach between owning and renting.

Beyond reserved instances, the ability to scale up/ down as needed is of significant value to many enterprises. And this one of the core value propositions for cloud. Use the economy car when you need it and rent the larger SUV for those times when you need greater capacity. Traditional data centers do not offer this flexibility. To compensate, enterprises build for SUV capabilities even though they may only need it 10-20% of the time.

In the past few years, alternative solutions have come to market that provide cloud-like experiences and pricing with on-premises options. Good examples of this are HPE’s GreenLake and Dell’s APEX offerings.

Cloud native is the key to unlocking value

Understanding the options is one thing. In order to truly take advantage of cloud, the applications and architectures need to accommodate a cloud-native approach. Most enterprise applications are inflexible and consume as many resources as the infrastructure will provide.

In a traditional model, scale is managed by the infrastructure, not the application. In a cloud model, the application needs to have intelligence to scale up/ down cloud resources as needed. 

Here’s the kicker… Beyond the basics of compute, storage and network, cloud solutions offer higher-value services. For enterprises, the real value from cloud is when these solutions are leveraged. Often, these services are not feasible to run on-premises due to their sophistication, cost to operate, expertise required and/or resources consumed.

So, is cloud computing more expensive than the alternatives? In general, if only looking at the basics, yes. If looking at the added value that cloud provides, no. But it is important to tease apart the pieces to fully understand how they map against your own situation today and moving forward. Public cloud services are not the right solution for everything either. It is just another tool in the arsenal.

Further reading:

Is public cloud more or less expensive than corporate data center options?

Eight ways enterprises struggle with public cloud

Why are enterprises moving away from public cloud?

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