Five things you should know about cloud economics

More enterprises today are comfortable with the idea of using cloud services — 73 percent are in the process of developing a cloud strategy. Those who have already invested in cloud are seeing the value and continuing to increase usage. In 2015, 60 percent of enterprise infrastructure decision-makers said they expect to increase spending on cloud services over the next 12 months.


While the speed and agility of cloud services will prove their own value, how can you be sure that cloud users within your organisation are employing responsible practices to keep costs at a minimum? Cost should rarely be the primary economic consideration with cloud, but of course, it remains important.

Given that cloud infrastructure is designed under fundamentally different principles and expectations than owned infrastructure, most applications built for traditional hardware configurations will not be able to leverage the elasticity of cloud environments and may end up costing more in the long run.

While public cloud adoption primarily focuses on net-new workloads today, enterprises are increasingly looking to the public cloud for existing systems-of-record applications.  This often means redesigning or rewriting application, which isn't a simple endeavor.

To ensure that you're using cloud services effectively, here are five key facts about cloud economics to help you identify how your organization can optimise cloud usage:

Fact 1. The best use cases leverage the variable pricing model of cloud services

 Low costs per virtual machine (VM) aren't what make cloud cheaper. What matters most is the resource consumption pattern of the workload. Cloud infrastructure saves you money only when you aren't using it. Thus, the best fit workloads are those with transient or dynamic properties. Buying new servers to accommodate a short burst in usage isn't cost effective. Expanding into a new region or product line without known success previously required a huge financial commitment in technology resources. Public cloud minimises your initial investment so you can lower the risk or anticipate a fluctuating business cycle. 

Fact 2. Internal support costs will not drop to zero

Public cloud infrastructure is not synonymous with the outsourcing you're accustomed to. Yes, someone else will run the infrastructure, but internal teams are still responsible for protecting the assets of your business and ensuring the performance and availability of your applications wherever they are deployed.  Administrative roles will diminish — like facility management and hardware support — but new governance and integration responsibilities will require more attention. If your public cloud ROI is dependent on headcount reduction or eliminating existing hardware costs, you're going to disappoint your CFO.

Fact 3. Public clouds don't follow McDonald's value-meal pricing

Movie theaters and fast food restaurants train consumers to believe that if we buy bigger, the cost per unit is cheaper. Don't carry this assumption over to public clouds. Behind the scenes, public cloud providers can increase their margins by pushing average sustained utilisation rates as high as possible. They achieve this by moving around customer workloads to minimize the number of running physical machines. Thus the smaller the parts, the more you can fit. By incentivizing customers to buy lots of small VMs, cloud providers can improve their utilisation and, therefore, their margins. This means they financially reward you for breaking apart your large monolithic apps into smaller components.

Fact 4. Developer empowerment and productivity are the keys to meeting ROI

The real ROI of cloud infrastructure comes from increased speed and agility. For the business, this translates into fast and easy customer engagement. While better cloud management helps optimize cloud usage and spending, adhering to the business's customer-focused cloud expectations takes priority. Technology teams that require manual approval for resource requests  will  quickly find themselves being circumvented. Developers want autonomy and speed — technology teams can deliver that via self-service portals and application programming interfaces while ensuring healthy infrastructure policies through templates that abstract the details and ensure consistency and retroactive review of provisioned resources.

Fact 5. Beware of hidden costs

Users in the nascent stages of cloud adoption may incur unforeseen costs when it comes to data calls, licensing changes, and error rates. While base service charges correlate to location, volumes, and performance metrics, additional costs will be determined by the nature of the application architecture, user behavior, and cross-platform integrations.

Understanding these principles is just the beginning. Depending on your organisation, cloud usage may be siloed within user groups and developer initiatives. Helping disparate teams across your organisation manage cloud spend will require a holistic view, established policies, and effective governance. One unified perspective will help technology management professionals establish and communicate best practices as well as consolidate bills to achieve minimum thresholds for price reductions. The fiscal benefits of cloud will prove a fallacy if you make the wrong decisions. Even if you are moving fast, you may be spending money more quickly without quickly increasing revenue.

Sophia I. Vargas is an analyst at Forrester on the Infrastructure & Operations research team, delivering research and consulting projects on data center strategy, facilities and 3D printing. The research report highlighted in this article has been co-authored by Lauren E. Nelson with Glenn O'Donnell and Michael Caputo.


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