October 20, 2014
Cloud has constantly evolved since its widespread inclusion in the world of business.
For example, in the past year, cloud budgets for organizations were slated to increase by 8 to 9 percent (see: The Five Most Important Cloud Investments for Business in 2014). Meanwhile, prominent IT companies were spending millions to offer their own cloud services (see: Cisco Will Spend $1 Billion to Offer Cloud Computing Services).
Despite all this, public opinion has wavered in recent months regarding the economic role of cloud in business landscapes.
The main question boils down to this: Do public cloud services eventually cost your organization more than on-premise systems or private clouds?
The answer is, as always, it depends.
Many variables comprise the debate between public cloud versus on-site systems – but the deciding factor to consider, experts say, is the consistency of workloads.
According to a recent Forbes article*, an organization with highly variable computing needs may benefit more from cloud services.
Organizations with consistent and unchanging workloads, on the other hand, should invest in an on-premises, in-house system.
Another important deciding factor is cost (considered in context with demand).
Experts point out that companies realize the cost advantage of cloud services when they’re required to handle spikes in demand.* For example, if cloud services are heavily used just once or twice a month, it would make more economic sense to employ a pay-per-use model, rather than an expensive monthly payment.
Take this quote from Joe Weinman, author of Cloudonomics: The Business Value of Cloud Computing, for example:*
“People fail to realize the value in the cloud pricing model is not the lower unit cost, but the pay-per-use property in the presence of sufficiently valuable demand. So if my demand is flat, I don’t want to pay $1500 a month; I want to pay $300 a month. If its only one day a month or one day a year, then I would rather pay the lower total cost, even with the higher unit cost.”
Commonly an overlooked area, it’s essential to note that public cloud services have more overhead than in-house IT departments (a difference that could impact costs).
In short, public cloud services open the door for sales and administrative costs, a built-in profit margin, as well as accounting for “uncollectibles” from customers who don’t pay.* An in-house IT department, on the other hand, doesn’t need to worry about these concerns.
* McKendrick, Joe. Why Cloud Makes Economic Sense In Limited Doses, Forbes.com. Forbes Media LLC.