Cloud computing costs in perspective

Date: March 23, 2010
Pages: 25
US$ 1,495.00
Publisher: Ovum
Report type: Strategic Report
Delivery: E-mail Delivery (PDF)

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Cloud computing costs in perspective
Most cloud strategies have an initial focus on cost reduction or improved cost efficiencies, for two main reasons: the global recession, and the failure of many on-premise IT investments to deliver the cost savings they were supposed to. This is easier said than done, as cloud computing may lead to some cost reductions but introduce complexities of its own for users. This reports looks at costs, pricing, and licensing issues related to the various types of public cloud offerings. It contrasts these offerings, including comparison with private clouds.

Ovum view
Cloud computing’s focus on cost is part of a wider cost scrutiny effort
Public clouds can lower costs, but need to be scrutinized
Practicality is more important than lower costs
IaaS, PaaS, and SaaS are converging from a pricing and licensing perspective
Private clouds are emerging to make the internal data center more cost-effective
Hybrid clouds are the way to go but will be complex
Key messages
Enterprises need to scrutinize and adapt to public clouds’ cost characteristics
Public clouds have attractive cost characteristics
Lower costs via economies of scale
Lower upfront and operational costs
Affordable IT for all
Public clouds turn capex into opex
Public clouds widen the case for opex
A shift should be handled carefully
Public clouds’ cost attractiveness is not that straightforward
It depends on the type of public cloud offering
It depends on the market dynamics behind the public cloud offering
Public cloud service costs quickly add up
The transition to public clouds needs to be managed from a cost perspective
Procurement specialists need to adapt and update their skills
Technology use needs to adapt to public cloud specificity
Architects and developers need to understand the cost implications of their actions
Difficulties will fuel a backlash
Practical considerations trump economics when it comes to public clouds
Cost savings are not the most attractive characteristics of public clouds
Speed and ease of procurement are more attractive than lower costs
Lower risks and flexibility are more attractive than lower costs
Focus is more attractive than long-term costs
New technology and efficiency are more attractive than lower costs


Evolution will not result in complete commoditization
Commoditization is the name of the game – within limits
IaaS will remain the most commoditized
PaaS is less likely to be commoditized than IaaS
SaaS competition, rather than commoditization, will keep prices down
From upfront license to subscription to PAYG, and back
SaaS is part of the software market’s move to subscription licensing
IaaS and PaaS move one step further to PAYG
SaaS will take one step towards PAYG
IaaS and PaaS will take one step backward to subscriptions
SaaS will shift from price to licensing flexibility
Free-to-use offerings will remain limited
Towards more price transparency – within limits
More detailed, easier-to-find pricing
All-in-one pricing
Less discount leeway
Increasingly complex
From pay-as-you-go to “pay-as-you-grow”
Public cloud price diversification will be limited by IT systems
Vendors are still feeling their way
Focusing on operational efficiencies to bring costs down
Better pricing management systems
Improved usage metering and billing systems


Private cloud: a cost-centric notion
Boosting data center economics
Putting public cloud cost-effectiveness in context
Private clouds: the larger, the more cost attractive
McKinsey is right: pull your data center together first
Put your efforts in context
Cost management is getting more complicated
On-premise software vendors fight public clouds with new financing and pricing options
More needs to be accomplished, and vendors will find it hard to cope
Hybrid clouds make the situation even more complicated
Enterprise users need better systems to manage both public and private clouds
An asset lifecycle approach is key
The objective of automated cloud auctions is far away


Recommendations for enterprises
Analyze your figures
Opex is not a panacea
Train specialists and adapt systems, processes, and metrics
Recommendations for suppliers
Get ready: train specialists and adapt systems, processes, and metrics
Mix and match pricing and licensing approaches
Compare your organization to its peers rather than on-premise alternatives
Use free-to-start offerings to boost adoption


Further reading
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