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Cloud Economics

What is Cloud Economics?

Cloud economics covers the costs, benefits, and other financial considerations that come with cloud migration, ongoing operations in the cloud, or switching to a different cloud provider. Moving or adding new workloads to the cloud can come with a host of benefits, but understanding every angle of cloud economics can help you answer whether making a change now is a good choice for your business.

What Are the Economic Advantages of the Cloud?

For most businesses, cloud solutions allow for increased efficiency, enabled automation, and better connectivity between end users, which can save on costs and time. Cloud architecture also supports modernization projects and scalability, giving IT departments the tools they need to innovate and support technologies like IoT devices, AI, and machine learning. Organizations that can deliver a better, more reliable user experience will stay more relevant in competitive markets.

What Are Key Aspects of Cloud Economics?

TCO

Cloud total cost of ownership (TCO) calculates all of the costs involved in a cloud computing project. This could include everything from the cost of migration and associated strategy, internal training and onboarding, reduced capital expenditures (CapEx) cost, change in spend for facilities, regulatory costs and considerations, anticipated changes to cost of operating in the cloud as the business grows and shifts, support and maintenance, security, data transfer costs, and sunk costs that may come from ceasing to use services and resources before agreements expire.

CapEx vs. OpEx Switch

While it may seem like the smart, economical idea to invest in ownership of equipment and facilities for long-term savings, switching from a CapEx to an operational expenditures (OpEx) model can prevent companies from buying more than they need, investing in hardware that will become obsolete or quickly insufficient, and reduce organizational responsibility for physical pieces of IT infrastructure.

On-Demand Pricing

Aligned with the OpEx model, cloud pricing is mostly on-demand and subscription-based. In this scenario, you only pay for what you need. As long as resources are configured and optimized correctly, there's no risk of overprovisioning.

 

Another pricing option is Reserved Instances (RI) which allows companies to commit to a certain amount of cloud computing resources, for a fixed term of typically one or three years, in exchange for a lower rate compared to on-demand pricing. Keep in mind that it's important to review past usage and estimate future usage before moving forward with RI over a subscription-based pricing model to ensure you stay within budget.

 

Overall, it's crucial to develop a dynamic OpEx approach to cloud economics that includes continuous optimization of incremental cloud costs by choosing cloud services that best fit current workload requirements.

Elasticity

Elasticity describes the ability of a system to adapt to changes in workload requirements based on demand, or lack thereof. An elastic cloud environment can expand and contract quickly, provisioning and retiring resources as necessary according to rules and automations, or even on a manual basis, to get as close to matching demand as possible.

AWS Cloud Economics

Cloud platforms, including Amazon Web Services (AWS) and Microsoft Azure, have tools and guidelines that help with various cloud economics topics, such as TCO reduction, rightsizing, pay-as-you-go options, and more. Here are some of the cloud economics features and tools available from AWS.

AWS Well-Architected Framework and AWS Cloud Adoption Framework

AWS has created a set of guidelines called the "AWS Well-Architected Framework" to follow when building a system within AWS. The framework is designed to help IT leaders understand architectural best practices for designing and running systems in cloud that are:

  • Reliable
  • Cost-effective
  • Secure
  • Efficient
  • Sustainable

Additionally, AWS has also designed a Cloud Adoption Framework that identifies specific capabilities and offers industry best practices to follow to digitally transform and speed up desired business outcomes.

AWS Well-Architected Framework and AWS Cloud Adoption Framework

AWS has created a set of guidelines called the "AWS Well-Architected Framework" to follow when building a system within AWS. The framework is designed to help IT leaders understand architectural best practices for designing and running systems in cloud that are:

  • Reliable
  • Cost-effective
  • Secure
  • Efficient
  • Sustainable

Additionally, AWS has also designed a Cloud Adoption Framework that identifies specific capabilities and offers industry best practices to follow to digitally transform and speed up desired business outcomes.

Total Cost of Ownership (TCO) Reduction

AWS Migration Evaluator, owned by Amazon, is a software that analyzes an organization's TCO. It can also provide cost modeling for future scenarios. The software uses millions of data points from both the current environment and historical usage to provide insights on how applications are running and how they might be able to be run for a better TCO. Using this tool can help make a business case for additional migration.

Pay-as-You-Go

Like most cloud platforms, AWS allows users to pay for the resources they need without signing up on long-term contracts or requiring minimum spend.

Tiered Pricing

When organizations use more data transfer and storage resources, AWS charges less via tiered pricing. High-volume projects can also receive custom pricing and discounts.

Trusted Advisor

AWS Trusted Advisor is a real-time service that helps customers provision resources based on AWS best practices in a way that reduces costs and improves security and performance.

Cost Explorer

AWS Cost Explorer helps users see their AWS usage and costs over time. Customers are able to forecast future costs and see what's driving the highest usage and spend so anything unnecessary can be addressed quickly.

Azure Cloud Economics

Microsoft Azure offers similar tools to AWS to help organizations gain understanding and control over their cloud economics.

Azure Well-Architected Framework and Azure Cloud Adoption Framewor

Microsoft has created the Azure Well-Architected Framework that consists of five guiding tenets to follow to improve the quality, stability, and efficiency of your cloud infrastructure. Additionally, they have designed a Cloud Adoption Framework for Azure that offers guidance and best practices to follow during each phase of the cloud adoption process.

Azure Reservations

For workloads that are more predictable, customers can reduce costs with fixed pricing through Azure Reservations. For instance, if there are regular processes that run the same way with a predictable cadence, they can be accounted for ahead of time.

Azure Hybrid Benefit

With the Azure Hybrid Benefit, businesses can use their Software Assurance-enabled on premises licenses for Windows Server, SQL Server, RedHat, or SUSE Linux subscriptions on Azure, which can help reduce the cost of operating workloads in a hybrid cloud setup.

Azure Dev and Test Pricing

Customers can get discounted rates for testing and development on Azure, including special pricing on services and no cost for Microsoft software on Azure Virtual Machines.

Spot Virtual Machines

Not all workloads are equally urgent or important. Prioritizing appropriately can result in significant savings. If workloads can be interrupted and completed in a wider timeframe, organizations can receive discounts with spot virtual machines.

What Do IT Teams Need to Know About Cloud Economics?

When it comes to cloud economics, understanding the costs and benefits associated with cloud migration and IT modernization can help IT leaders make well-informed decisions that weigh security, performance, compliance, and budget considerations. Considering cloud economics as part of a journey versus a one-off project can help IT teams truly see what their ROI and TCO might be both now and in the future and help sell the vision of cloud migration to key stakeholders. All in all, optimization isn't possible without having a good handle on cloud economics.

Why is Cloud Cost Intelligence Important for Cloud Economics?

Cloud cost intelligence plays a major role in cloud economics, offering a view of how much services, products, and team resources cost, as well as factors that may be causing sudden upticks in spend. Businesses can use third-party and cloud platform tools to attain cloud cost intelligence and calibrate resource allocation and budgeting accordingly.

Understanding Your Cloud Economics with TierPoint

So many tools and services are at your disposal that can help you understand your cloud economics, but sometimes, it's knowing where to start or how to move next that gets complicated. TierPoint's IT Consulting Services and IT cost optimization services can help you gain visibility on your cloud environment and economics and make data-driven decisions on how to best move forward to reduce costs, improve profitability, and operate efficiently.

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