David Merrill

Re-hydrating Cloud Economics Part 3

Blog Post created by David Merrill Employee on Oct 17, 2016

Cloud Economics from the IaaS Perspective

by David Merrill  on Jul 22, 2013


I came across an interesting article on how IaaS cloud-provider-economics work. While it is a simple article with basic economic concepts, it sheds some light on how commoditization and differentiation in the market will have to change in the near future.


A couple of observations from reading this article depending on your points of view:

From a Cloud Provider:

  • There are many assumptions about the underlying storage and service architecture that providers are using to build and deploy cloud services. The article implies that all hardware and architectures are the same
  • HDS provides some highly-differentiating and economically-superior storage solutions to many IaaS service providers (Telco, Global SI, traditional cloud providers) that present a virtualized architecture that can scale-up and out with the growth requirements
  • Some of the tactics to “race to the bottom” in price tend to leave a sour taste in the mouth of consumers, as so many features and functions are additive and get shifted to the variable rate cost area

From a Cloud Consumer:

  • This article was written from the perspective of the IaaS company economics, and how they are having to respond to commodization and competitive offerings in their business. It was not created to help the consumer side of cloud economics find, evaluate and select the right cloud options that actually can reduce your costs.
  • As I have posted earlier, some cloud offerings and decisions  may actually increase costs, so you need to understand all the options and pricing rates from the IaaS (as outlined in this article) and add in other fixed and variable costs that will make-up your new total cost of ownership
  • What I liked about the article was some insight into pricing differences of various cloud vendors. These vendors are not non-profit organizations, so they have to be creative in the engineering and marketing of their solutions. This kind of transparency in the article is refreshing, but also insightful for those that want to know how the price options really work with IaaA vendors
  • So beyond the economics of vendors as outlined in this article, you the consumer has to be very aware of several factors where examining all costs (some are hidden) when comparing and contrasting cloud offerings to a DIY approach. For example:
    • Network transmission between your site and the provider
    • Cost of change, adds, or deleted
    • Transformation cost, or re-hosting, moving to a different provider (even though it may be a future cost)
    • Cost of latency, performance
    • Risk, in terms of off-site premise, protection, country/legal/compliance areas

It will be fun to see how different providers adjust to new/global competition in this area, but we cannot ignore the consumer impact on total cost requirements and capabilities that need to be assembled to meet the local user requirements