The Real Cost of Cloud Computing

This post was originally published for CloudHealth on 09.17.18.

Cloud computing is a brilliant way to optimize spend and scale your data center, but how much does cloud computing really cost when compared with on-premises infrastructure?

In order to answer this question, you have to audit your current infrastructure cost and then compare it with the total cost of ownership (TCO) of moving to the cloud.

Migrating to the cloud is not just about savings, but how much cloud computing costs when compared with what you are spending at the moment.

This might sound confusing, but these two factors are actually quite different. Working out the financial benefits of moving to the cloud is a two-stage process. First, audit your current infrastructure costs before calculating the TCO, which is the total cost of migrating to the cloud plus monthly spend.

There are also other costs associated with moving to the cloud that have to be taken into account, and these have to be weighed against the non-financial benefits. As no two businesses operate in exactly the same way, each comparison has to be conducted on a case-by-case basis in order to arrive at a decision informed by a business’s individual requirements.

1. Conduct an Audit of Your Current Infrastructure Costs

An in-depth audit of your current IT infrastructure has three benefits. It will identify the cost of your current setup, help you find areas in which savings can be made, and determine what a future cloud environment will look like. The audit should include both the direct and indirect costs of running an on-premises IT infrastructure, including hardware, software, and staff.

Direct Costs
This typically refers to the cost of hardware and software, along with such items as maintenance contracts and software licenses. You should also take into account the details of your infrastructure, such as the compute capacity of servers, data storage requirements, and bandwidth, as these will be required to calculate the TCO.

Indirect Costs
Indirect infrastructure costs are your operational costs. Some operational costs will be the same in both cloud and on-premise environments (i.e. the cost of staff and your internet service), but other operational costs—such as housing, operating, and cooling physical servers—will significantly impact your current infrastructure cost.

2: Determine Your Total Cost of Ownership

Most major cloud service providers offer an online calculator you can use to determine the TCO of their services.

You can check out:

  • AWS Total Cost of Ownership Calculator
  • Azure Total Cost of Ownership Calculator
  • Google Total Cost of Ownership Calculator

Each of these calculators initially works in very similar ways. You enter the number, types and configurations of the servers you want to provision, and the storage capacity you require—estimating how much data is accessed infrequently in order to benefit from cheaper storage rates.

From here, the AWS and Google calculators offer advanced options, whereas the Azure calculator has a page of “Assumptions”.

Exercise caution when using the Azure Assumptions page because, as part of a cost comparison, Azure takes into account factors like the cost of housing, operating, and cooling physical servers. This means you will not be able to subtract one calculation from another in order to calculate the cloud computing cost compared with your existing on-premises IT infrastructure.

3: Think About the Hidden Costs

Migration is the most significant ‘other’ costs you will encounter when moving to the cloud. This can fluctuate considerably depending on the type of setup you have, as well as your level of preparedness. For example, if you are transferring a large volume of data to the cloud, this will incur fees and there will be further costs involved in synchronizing the data and ensuring its integrity.

When considering a migration, you might realize that your apps are not cloud ready, or your legacy systems are incompatible with the resources you will provision in the cloud. In these cases, the cost of adjusting, testing, and integrating the apps/systems must be taken into account, along with any skills or resources you contract in order to oversee a smooth migration to the cloud.

These might look like significant costs when itemized as such, but there are considerable benefits to moving to the cloud that can more than compensate.

Businesses that have moved to the cloud have experienced:

  • Increased flexibility and scalability
  • Improved business continuity
  • More effective collaboration
  • Access to automatic updates
  • Fresh software availability
  • Reduced environmental impact

The agility offered by the cloud allows your business to test and launch products faster, and better respond to changing market conditions. The likelihood is you will experience minimal downtime and, if the worst happens at local level, you have the means to quickly execute disaster recovery plans.

Added to the cost savings you will likely achieve, these are important factors when calculating the real cost of cloud computing.

Love the cloud but not loving your cloud spend? Download the 5 Best Practices for Improving Cloud Cost Management eBook.

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