Our thoughts on the future of digital innovation and the cloud.

The common perception, and 5 things that may make you change your mind.

There is a common assumption that migrating to the cloud means saving costs over on-premises technology. But those who jump in blind can be in for a rude surprise when the bill arrives.

This is not to say whether cloud is inherently more expensive or not. Upfront cloud costs can be more, despite there being no physical aspect. To make sense of this, it helps to shift your mindset about the value technology provides. The cloud offers possibilities well beyond the limitations of on-premises servers. Yet many businesses fail to take advantage of these benefits because they cannot quite imagine what is possible.

Perception of cost

Comparing cloud and on-premises computing costs is difficult. It is easy to look at a cloud subscription price and the sticker price of a server, and assume they are one and the same. While the sticker price can often appear lower, many don’t consider the end-to-end expense of an on-premises server. Costs such as infrastructure, heating and cooling, installation and electricity, and repairs or replacements when something goes awry can add up. That, and will a cheap server suffice for your performance needs?

A cloud economic assessment can offer a sense of cloud costs against a current configuration. Still, as we recently discussed in our podcast, comparing costs between the three major cloud service providers is a challenge. Each uses a different calculation method from the others, making a direct comparison impossible. In addition, Google’s pricing calculator assumes discounts based on high levels of usage, which may not reflect your actual need.

Calculators can also provide unreasonably low estimates. Much like a $27,000 car at a dealership can suddenly cost $45,000 once the extras are accounted for, cloud costs can quickly inflate. Oftentimes those extras, like egress traffic, a subnet, firewall, and VPN, are non-negotiables.

Licensing can also add substantial cost. Azure users can bring their existing Microsoft licences to the cloud via the Azure Hybrid Benefit. Porting a license to Google or Amazon, however, will invalidate it. Because Google and Amazon must obtain licenses from Microsoft, they pass those fees on to the end user through their cloud compute costs. Essentially, the product is the same, but the cost is much greater.

Comparing true on-premises and cloud costs is difficult, and looking for the cheapest alternative may be a fool’s errand. They are simply not the same. The architectural viewpoint changes in the cloud, as do the tools and technologies available to solve problems and meet operational needs. The entire concept of value changes.

These 5 things may change your perception …

1. Capacity

On-premises, capacity is purchased upfront with a best-guess at future needs. You may anticipate reaching a million hits per month in five years’ time. Whether you achieve this, or whether you only reach 10,000 hits per month, the cost is sunk, and your investment has largely sat idle. Alternately, you may reach 10 million hits per month within the first year. While surely a good problem to have, the server must then be rebuilt to accommodate for volume. At some point, the server reaches capacity and cannot be expanded further.

The cloud’s pay-as-you-go model means you can start small and scale, limiting wasted costs. Moreover, the scale of the public cloud is large enough that most customers will never max it out

2. Latent value

Any organization has a gap between current performance and future possibility. Leveraging the cloud can unlock organizational knowledge by making data centralized, searchable, organized and efficiently analyzed. Data sets that have never sat together can be consolidated, revealing patterns or other critical information sets. You can become nimbler and more effective as a result.

Automation and the ability to scale out environments with the click of a button can be tremendously valuable. However, ancillary benefits like these aren’t usually available out of the box. They must be built, and require investment, but the agility you gain means better and faster achievements.

3. Governance 

A clear set of ground rules always helps a system run smoothly. Appointing the right individuals to operate under a clear strategic framework can contain cloud costs and headaches alike. It may be tempting to rely on out of the box controls, but these are not suitable for all situations. Jumping in blind, without suitable checks and balances in place, may lead to expensive consequences when the bill arrives.

This kind of cost optimization is a cloud hallmark. On-premises machines can run at 10% of capacity, and that is fine (although certainly not very cost effective). Cloud servers can run at 50 – 80% of capacity consistently. When they reach 100% for a sustained period, you can consider up-sizing. A minimum of wasted space means a minimum of wasted cost.

Every organization has a unique balance in empowering those who implement, design and develop technology, and enforcing suitable boundaries. But even a simple rule like de-allocating tools when not in use can save two thirds of what it costs to leave them running full-time.

Good governance also enables the cloud to provide improved security over an on-premises device. In Azure, the power of Microsoft’s security is behind you, and theirs is one of the most robust systems in the world.

4. What is value – to you?

Relative cloud costs can seem ambiguous against the certainty of a physical device. It is crucial to understand the value of what the cloud offers to your organization and its goals. Broadly, across most organizations, the cloud can increase productivity using the same number of resources. This means talent can be better allocated, taking on more impactful roles within the organization.

5. Cloud as revenue driver

Migrating to the cloud is more than a question of saving money. The notion of IT departments as a cost centre is archaic and changing. Costs can only come down so much, and inward-looking improvements taken so far.

With the cloud, IT can leverage its expertise to find business improvement solutions. Through the power of automation, scaling, accuracy, and speed to market, IT can drive earnings, helping the business to become more profitable. Automating lower-end processes especially allows resources to reallocate to higher-level tasks. Such process improvements can save real costs through staffing or time.

A strategic mindset, and a big-picture view of the business’ industry, allow IT to contribute more than simply supporting workstations and servers. At the same time, partnerships become easier to deploy and manage, while enjoying greater system security.

This is just a sliver of what the cloud can do. Its extensibility provides tremendous extra value. The trick is being able to see it – and believe in what is possible.