The Economics of Cloud Computing

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economicsMany small businesses feel overwhelmed by cloud computing at first, but once they realize the economic value many cloud services provide, they take a second look. This window of opportunity for small businesses to scale in ways they could never have before provides them with a great advantage to position themselves against even the largest competitors.

Most cloud services offer economies of scale by leveraging the massive server capacity available. A prominent example of this is Amazon’s seemingly endless amount of storage space on their cloud. The cloud is essentially elastic, meaning it can easily scale up or down depending on the demand. A small business with cost constraints can take advantage for this pay-as-you-go cost model rather than purchasing an IT server and managers.

Cloud computing became the hot topic of discussion when the recession hit and companies had to tighen up their budgets. They could no longer afford expensive servers, clunky software, and entire IT teams to manage this infrastructure. Cost constraints led decision makers to open their minds to cloud computing. At this time, cloud computing was a fairly new concept and term, which led to many raised eyebrows and question marks. However, as companies slowly adopted cloud services, many others began to understand its purpose and benefits.

Now, it seems that people have moved from the question mark phase into the comparison between cloud services phase. Most don’t have to wonder what cloud computing is, they now wonder which one will provide the best value to their company and operations (as well as budgets).

In reality, any company, both small and large, can take advantage of the cloud for its storage infrastructure and cost savings. However, bigger companies have a harder time simply switching over from a local server to public cloud and expecting all employees to follow suit. Small companies who are smart can make inroads into places they could not go before, potentially disrupting their larger competition. This is possible because it is easier to scale and integrate on a global scale with cloud applications.

With traditional IT systems, businesses were forced to fork over hundreds of thousands of dollars up front to buy or build an application in hopes that it would work and provide significant value. Cloud computing changes that. Cloud computing now shifts investments from a costly transaction to an ongoing operations expense; the pay-as-you-go model.

The point of this post is not to just outline the cost of ownership, but to also understand that cloud applications will increase the agility of IT, both from a technical and financial standpoint. Without heavy initial outlays of money, the cloud allows companies to experiment with different applications at a very low cost (mostly the use of computer time working on it). Essentially, the cloud offers companies the ability to try out different services at little to no cost to find the perfect fit instead of having to commit to one system for years.

How about your organization? Have you adopted or considered cloud services to help get through budget costs or are you comfortable with an traditional IT infrastructure?

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  • http://bit.ly/9o7Xd0 Jeremy Hodge

    Cloud computing is all about business outcome and requires lots of thought and careful planning before executing a strategy.

    IBM has developed a cloud computing adoption framework, which establishes common definitions for cloud computing delivery models and services, illustrates the key capabilities to consider when developing cloud computing strategies, and identifies key aspects required to successfully execute that strategy. To learn more, check out this white paper…

    Defining a framework for Cloud adoption:
    http://bit.ly/9XswmZ

    Let me know if you have any questions. My Twitter handle is @jhodge88

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  • http://www.petersopinion.com PetersOpinion

    Nice summary of the current potential of cloud services and cloud computing. I believe it’s good to separate these two types of things the cloud offers us to prevent misunderstandings.

    I’m not sure whether or not we should focus on the economics from a cost perspective. Not for everyone it will be cheaper. Especially smaller companies will be able to rent cheaper hosting space today.

    I prefer to stress what the cloud has to offer.

    Especially business oriented people will like to hear that the availability, flexibility and scalability of their service will improve. They will sleep better knowing the uptime of i.e. their online store is guaranteed.

    The marketing manager will feel more comfortable knowing an unexpected successful (online) marketing campaign can be handled on a company website, blog or portal.

    From the IT management perspective ease of management and the possibility to guarantee the up time better will be important reasons to consider cloud computing.

    Easy integration of existing cloud services into your application indeed increases the agility of IT development. Honestly, this is not that new. Many developers are already using different web services for a longer period of time, enabling them to experiment.

    Although it seems appealing I fully agree with Jeremy it needs careful planning. Despite all the advantages many business owners won’t feel comfortable about the cloud. They will be concerned about the security of data and afraid about the availability of the service. It will take time to get the strategy accepted.

  • http://twitter.com/Cloud_Zone Cloud Zone

    Cloud computing is evolving fast. Today, organisations understand that they can use the model to cut costs, increase efficiency and be more responsive to changing market demands. They also know that the Cloud, with a range of ‘public’ and ‘private’ solutions available, can offer the security and information assurance to meet a range of needs.
    http://ow.ly/2OBJQ

  • http://twitter.com/AjevaCom Ajeva

    I guess I’m one of the lucky few who truly benefits from the wonders of cloud computing. Imagine if I do business the old way, I have to pay all those IT architects and maintenance stuff when now, I can simply subscribe to a service I want and pay for what I need. It’s now easier to compete with big businesses out there.

  • Anonymous

    Which cloud services do you now use? What is the main benefit you get out of them and the goal you are trying to achieve by using them?

  • Anonymous

    Great points! Yes the cloud absolutely holds great benefits and value, and the point of this post was to not only point out the cost savings but show that there are huge benefits along with these savings (something of which most traditional infrastructure units could not provide). We’re going to write a follow up blog post to build off of the idea in your comment as we completely agree.

    Thanks!

  • Anonymous

    Good points here Jeremy. It is absolutely essential to have a strategy and plan for using the cloud or else there is no purpose in the first place to use the cloud.

  • CloudComputingTopics

    I suppose it’s not always simple to compare the economical benefits of cloud services compared to on-premises solutions – especially as there are a number of criteria that need to be considered. It’s not just about balancing costs and technical features but, equally, security issues, data privacy and jurisdiction, to name a few. Also compliance, e.g. PCI. Migrating to the Cloud can be a great strategic decision – but only when observing the whole pictures.

    http://cloudcomputingtopics.com

  • http://twitter.com/cloudtopics CloudComputingTopics

    I suppose it’s not always simple to compare the economical benefits of cloud services compared to on-premises solutions – especially as there are a number of criteria that need to be considered. It’s not just about balancing costs and technical features but, equally, security issues, data privacy and jurisdiction, to name a few. Also compliance, e.g. PCI. Migrating to the Cloud can be a great strategic decision – but only when observing the whole pictures.

    http://cloudcomputingtopics.com

  • http://www.petersopinion.com PetersOpinion

    Looking forward to it because otherwise I have to do it myself. Keep me posted!

  • http://www.petersopinion.com PetersOpinion

    No, I don’t think you will be the only one, but please be more specific! Let us learn from your experiences.

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  • Anonymous

    We sure will!

  • Anonymous

    Great points, thanks for sharing them! :)

    Kristin
    Backupify