David Merrill

Cloud Economics circa 2016

Blog Post created by David Merrill Employee on Nov 3, 2016

So I have re-hydrated some older posts on cloud economics from the ancient past... now some observations on what we see today.


First, people often ask me if, when, why, and under what conditions clouds provide better costs than in-house, on-premise operations. The simple answer is "it depends". There are many points of infection based on workload, security, growth rates, access patterns etc. But there seems to be a few dimensions to consider before we start building total cost models.


  • The Performance Dimension - If the workload required sub-second performance, then you may need to re-think some cloud design assumptions. Network latency is a function of the spend for high-speed connections to the cloud provider, which increase costs to meet performance
  • The Data Security Dimension - how to protect and secure against intrusion, hacks, malware with a CSP. What are the costs and risks?
  • Data Sovereignty - Some clients have legal requirements to keep data and processing within fixed geographic boundaries, and accommodating this with a CSP can add risk and or costs
  • Access Patterns - this applies to cloud storage options. If the recovery time is important to business resumption, then understanding and having RPT and RTO assurances may add to the cloud costs
  • Rate of Change / Elasticity - a powerful aspect of cloud computing is the elastic nature of the infrastructure. But growth is not free, so the rate of change, growth up and down may have additional cost triggers that needs to be understood
  • Time Horizon - long-term or short-term nature of data processing and storage can often impact the PV benefits. If data and systems will indefinitely be cloud resident, then long-term views of cloud migration or cloud-transitions can be factored into a cost model.


I have worked with dozens of clients to help them determine, measure and calculate some of these above dimensions, and then put the results into a financial business case for the present-day. There are many options with cloud (private, hybrid and public) as well as optimizing the on-premise infrastructure to meet the current business demands. Graphs like the following help to cut through all the options and variations to give decision makers a better economic perspective of unit costs.




I still see many customers retracting from cloud moves they made 3-5 years ago due to costs. People tend to confuse a simple subscription rate with the total cost, and over time with all the get/put, migrations, uploads other cost triggers are factored in (including the network on-ramp to a CSP), then they can see the true cost of an old cloud decision. Some that have de-clouded will likely move back to a different cloud architecture, given some better optics into the total costs. Many more people are evolving to hybrids in order to provide the best cost balance and to dictate the cost inflection points on their own terms.


An excellent (but somewhat aging) book on this subject is Cloudonomics by Joe Weinman. The book does not give details about total cost benefits, but more of the business impact/benefits