Internal clouds vs public providers: It's the economics stupid

Cloud's ability to make IT more agile is undeniable, says's Bernard Golden. But once that benchmark is met, the cost effectiveness of the internal cloud versus public providers will be a key measure of success.


The question of costs associated with cloud computing continue to be controversial. You may recognise in this blog's title, an homage to the motto of Bill Clinton's 1992 Presidential campaign: "It's the Economy, Stupid." The motto referred to the decision by the Clinton campaign to focus relentlessly on how the US economy was doing in 1992, sidestepping other issues and always, always circling back to the economic outlook for the US.

I was reminded of this by some recent discussions on Twitter that discussed the importance of economics in terms of cloud adoption.

This question of cloud economics arises especially in the context of the endless discussions about private vs. public clouds (private usually being thought of as referring to a cloud environment inside a company's own datacentre).

Some people assert that private clouds obviously must be less expensive, because one owns the equipment and is not paying what is, in effect, a rental fee. The obvious analogy is buying a car vs. renting a car. If one uses a car every day, it's clearly less expensive to own rather than pay a daily rental fee to, say, Hertz.

Sometimes this argument is made stronger by noting that public cloud providers also are profit-seeking enterprises, so an extra tranche of end-user cost is present, representing the profit margin of the public offering.

The proponents of public cloud computing cost advantages point to the economies of scale large providers realise.

At a recent "AWS in the Enterprise" event, Werner Vogels, CTO of Amazon, noted that Amazon buys "10s of racks of servers at a time" and gets big discounts because of this. Also, AWS buys custom-designed equipment that leave out unneeded, power-using features like USB ports. Moreover, the public cloud providers implement operations automation to an extreme degree and thereby drop the labour cost factor in their clouds.

There is yet a third approach about cloud economics that calls for blend of private and public (sometimes referred to as hybrid) which marries the putative financial advantages of self-owned private clouds and the resource availability of highly elastic public clouds; this can be summarised as "own the base and rent the peak."

What is interesting about Twitter discussion around this topic is that people point to surveys about private cloud interest indicating the real motive behind the move to cloud computing is agility, i.e., the ability to obtain computing resources very quickly and in an on-demand fashion. Cost savings of cloud computing were considered secondary to rapid resource availability.

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