Cloud Economics or Flexibility?
The cost of cloud can be attractive, but that might not be the real draw.
You have to look at cloud services. You cannot avoid it. Even if you do not select cloud services, you need to investigate the economics and flexibility of the cloud.
That said, knowing what costs to consider as part of a cloud service implementation may make you reconsider the cloud choice. Some of the cloud decision is like choosing to take a cab, bus, train, or plane vs. renting, leasing, or buying a car. The choice depends on money, convenience, flexibility, and support.
No Static Technology Costs
Moore's Law holds that computing capacity keeps multiplying. Therefore, it is difficult to determine the cost of hardware except to know it will be cheaper next year. The constantly reducing hardware costs make any premises-based data center costs, when compared to the cloud, a moving target. What you calculate today will not be correct next year.
The reducing hardware cost will accrue to the cloud provider, too. However, whether the cloud service becomes cheaper in proportion to the hardware cost reduction will depend on your contract. Some enterprises lease their data center components to give them the technology flexibility in hardware choices and avoid hardware lock-in. Prices and technology are not constant.
A cloud option can be cheaper than its premises-based counterpart. The pay-to-use payment model is very attractive as long as the user does not abuse the usage. The cloud allows rapid response for an enterprise as it contends with change due to situations such as staff growth or reduction, market fluctuations, financial limitations, or new opportunities. The cloud delivers flexibility. You can affect changes in the cloud in as little as one day compared to the CAPEX effort required to modify an existing data center.
If you purchase cloud services on a fixed-fee basis rather than in a usage-related model, then your budget is controllable and predictable. Cloud services may reduce the time to market for advanced unified communication and collaboration features.
The Optimized Enterprise Data Center
Data centers have a fixed capacity. The capacity for the on-premises system cannot be running near 100% because that leaves no room for growth. On the other hand, if the utilization is low, then each unit of processing work is more expensive. The higher the utilization of the enterprise data center, then the cloud is less financially attractive. The cost per unit of processing becomes nearly the same. However, a highly utilized enterprise data center cannot quickly respond to increasing processing requirements.
Not every organization has a constant compute workload year-round. A cloud service helps in managing compute requirements and costs associated with fluctuating workloads. This becomes more important if the organization has seasonal variations. Fertilizer producers ship most of their product between January and May. The railroads and truckers have to support this seasonal variation. Some retailers have their heaviest traffic November through January. Peak retail traffic loads can be three times normal retail traffic loads.
Forgotten Cloud Costs
A cost most seem to forget is the expense of looking for and investigating cloud providers. You need to prepare solid return on investment and total cost of ownership calculations that do not depend on any assumptions. You will still have to demonstrate why the on-premises solution is not the way to go. Sometimes this will mean critiquing your own work. You may want to go through a cloud broker that works with various services and can compare the cloud services to your present costs.
If you need to transfer in-house applications to the cloud, you will need to factor in a migration cost. In assessing that overall cost, consider IT staffing costs as well as costs associated with user training and possibly some short productivity reduction as the users learn to work with the cloud service. In addition, know that during the migration, you will need to operate the on-premises system as a backup before you retire it.
If the enterprise uses multiple cloud services, then federation becomes an issue. Federation, as it becomes available, is another cost. While the IEEE is working on an intercloud standard for interoperability and federation, BT recently introduced a cloud federation service.
Flexibility First, Cost Second
In my opinion, a cloud service's flexibility is what makes it most attractive. The enterprise should analyze its usage patterns over a year. The patterns may easily justify the cloud. It also needs to investigate the marketing and sales departments should also be investigated. You don't want their marketing and sales success to be hampered by an on-premises system that cannot support the additional processing and traffic that result from their efforts.