I've seen many people refer to one of the economic benefits of cloud computing as moving expenditures from Capital Expenditures to Operating Expenses. As I have suffered through many a tech nerdy explanation, I'll now make you all suffer through an accounting nerdy explanation, as among my many sins I have an MBA.
An on-demand service provider typically charges a utility premium — a higher cost per unit time for a resource than if it were owned, financed or leased.
$0.4 x 24-hours/day x 365 days/year x 3 years = $10,512
- The whole point about cloud computing, and particularly infrastructure-as-a-service, is that you DON'T utilize 100% of your IT 24/7/365. Cloud providers allow you to deploy new servers in minutes and pay based on hourly usage, which will have a huge impact on the economics. Several back of the envelope calculations I've seen, show that even with an average utilization as high as 70% (and that's very high), you're better off with EC2 than buying your own hardware
- There are many costs involved in running your own IT infrastructure that go beyond just buying servers, networking equipment and software licenses. These include real estate, energy, cooling, IT admin staffs, management and monitoring software and servers and on and on. It is true that many of these costs are already included in hosting services such as Rackspace, but the important thing is to make sure you're always comparing apples to apples.
- There are many economic benefits to cloud computing that arise from issues other than direct costs savings on infrastructure acquisition. They have to do with things such as increased agility (the ability to get up and running with new products and services faster), with the ability to scale on-demand to handle unexpected loads (and thus prevent loss of business due to decreased performance or outright downtime), and several other issues, which I will discuss in my ROI post.