Cost reduction is considered to be one of the primary benefits of adopting a cloud hosting model. However, in practice, this may not always be an accurate assumption. One of the nuances of financial analysis is that public cloud computing may not be necessarily cheaper than dedicated traditional hosting. Additional considerations include the impact on Transformation/Migration costs, Total Cost of Ownership (TCO) as well as the position of the organization in the IT life cycle. Read the following whitepaper to explore all these areas to illustrate some of the major factors an organization would need to consider while considering migration to the cloud.
Is Cloud Hosting Cheaper than Dedicated Hosting?
One of the common misconceptions is that public cloud computing works out cheaper than dedicated hosting. However, a unit of cloud computing is more expensive in comparison to a unit of dedicated hosting. This is due to the short period of commitment that cloud service providers require for the cloud. So how do consumers reduce costs? The solution is to exploit variation in demand.
Can Costs Be Reduced?
There are various ways to reduce the operating expenditure some of which are:
- Capex to Opex
- Measuring TCO: real estate, tangible and intangible assets, human labour, auditing/ compliance, and downtime/ outages
- TCO reduction areas
- TCO perspective
- Human perspective
- Transformation costs
- Position in the IT life cycle
Calculate Investment Return
With an understanding of the Total Cost of Ownership (TCO) of your current application,the expected cost of transforming the application to a hosted context and the expected savings from moving to an outsourced hosting model, calculating the amount your organization can save is possible with an outsourcing decision. Investment return can be calculated using the Net Present Value (NPV) and ROI formula.
Key Takeaways from "Cloud: Economics"
- In order to realize cost savings through the use of a public cloud hosting model, sufficient variability in demand is required. Over a fixed contact term, flat workloads work out cheaper on dedicated infrastructure
- Tracking the utilization of resources per application within your IT organization is required to accurately measure the current TCO of an individual application
- Methods such as Net Present Value (NPV) help to account for the time value of money while performing ROI calculations
- Transformation costs associated with migrating an application from current to target context must always be factored into the cost equation.
Download this whitepaper to know everything about the economics of the cloud.