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Cloud-onomics 101

Fuzzy-math: The economics of cloud computing

By , Network World
February 07, 2011 12:03 AM ET

Network World - Industry watchers and IT execs are hailing the cloud computing model for advantages it brings to the enterprise - agility, ease of use, scalability and, especially, lower costs realized in the trade-off of capital outlays for ongoing, more digestible operational expenses.

Enterprise Cloud Services: The agenda

"Our No. 1 ambition for cloud computing is economic," says Johan Goossens, head of NATO Allied Command Transformation's Technology & Human Factors Branch in Norfolk, Va.

"With reduced budgets everywhere in the world and certainly in defense spending, we need to consolidate IT operations. And we think that the cloud offers us a chance to achieve some of that consolidation while improving information flows [among the 28 NATO nations] and allowing us to save some money," he says.

Toward that end, ACT is evaluating a number of cloud projects, and expects to find value in the private cloud as well as in public cloud infrastructure, platform and software services. "I'm convinced there will be savings, but I haven't quantified them yet," Goossens says.

Therein lies the rub.

Depending on your situation, cloud computing might not actually save you money - and even if you're convinced that cloud is saving you money, proving it can be difficult, says Geva Perry, an independent cloud strategist and author of the "Thinking Out Cloud" blog.

"When you see statistics like moving to the cloud can save you roughly 10%, you know those calculations are squishy," says Dave Hart, CTO of Presidio Networked Solutions, an IT services company. "All this economic stuff is in the eyes of the beholder."

Photo of Johan Goossens

For one, comparing the cost of using a public cloud service to that of buying and running hardware and software is an apples-to-oranges exercise.

Trying to factor in every little element is tough, Perry says.

"You've got to do things like figure out how much you'll pay for per-use bandwidth as opposed to what you'll pay when you strike a bandwidth deal. And, you've got to take into account the cost of maintenance and management of the IT infrastructure, including what's outsourced and what's not and what percentage of IT headcount goes away with a move to the cloud, for example," Perry says.

One of the only ways an enterprise can get a truer understanding of the costs is to start running applications in the cloud and then calculate the actual spend, Perry advises.

But that raises a slew of additional issues, such as how to account for fluctuating prices characteristic of an early market.

"If you look at Amazon, you'll see that it's had something like two dozen pricing announcements in the last two years - so the calculations you've made two weeks ago may no longer be relevant because your cloud provider has just slashed prices on one of its services you use," Perry says.

Also be aware that the pricing you pay for that experimentation won't necessarily mirror the cost of a production deployment.

If you're experimenting with Amazon's Elastic Compute Cloud, for example, you'd most likely pick and choose the resources you need from among the provider's On-Demand Instances, Perry says. These let you pay for compute capacity by the hour with no long-term commitments.

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