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Analyzing costs in cloud business models

By James Parker, senior vice president of sales, Savvis, special to Network World
December 07, 2012 09:55 AM ET

Network World - This vendor-written tech primer has been edited by Network World to eliminate product promotion, but readers should note it will likely favor the submitter's approach.

IT leaders know cloud is here to stay, but many are still trying to calculate the potential return on investment. Based on our experience, companies that outsource their infrastructure as a service (IaaS) can expect to achieve 18% cost savings over three years compared to in-house IT.

The stairway to cloud starts with virtualized, on-premise data centers protected behind firewalls, moves up to private clouds cordoned off in dedicated hosting space, and finally and most recently, public clouds hosted by service providers on demand, over the Internet. Experts say most large companies will move to hybrid clouds, which combine public and private services with traditional IT options such as outsourced managed services, colocation and in-house infrastructure.

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The reason is clear: Hybrid cloud offers the best opportunity for organizations to manage costs as they grow. Blending traditional IT services -- such as colocation or in-house solutions -- with cloud services helps companies meet cost and capital constraints while also allowing them to build on current infrastructure investments.

Balancing the cloud equation

As IT executives look to cloud as part of their IT outsourcing equation, they might get caught up in perceptions that public, multi-tenant environments, with costs shared across multiple customers, are cheaper than other options.

That's not always the case. Determining the right balance is key to cost-optimized cloud computing.

For those computing needs that support core business processes (i.e., client-relationship management software), or involve highly regulated workloads, such as those in the financial services industry, it may be smarter to leverage colocation or managed services.

For other computing requirements, such as application development and testing, email or content management, it may make more sense to go with public cloud services that can be scaled up and down as necessary to meet demand.

Colocation, managed services, cloud and other IT outsourcing solutions have unique cost/benefit tradeoffs. Clearly, combining the best of each option in a hybrid solution offers the greatest flexibility for optimized cost models.

For example, when media and technology publisher Saxotech needed to manage its infrastructure in the face of changing publishing trends, reader preferences and mega-content consumption, it looked for a way to combine its outsourced colocation arrangement with private cloud. It found an economical solution that blended infrastructure management solutions, private cloud, managed storage, hosting and hosted area network services.

Cost considerations

Cloud strategies provide flexible, scalable solutions for managing on-demand resource allocation and fluctuating compute power. But what often initially attracts IT leaders is the potential for cost savings.

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