Around 100 years ago the most popular debate regarding saving was whether you should buy a car or keep your horse.
There were articles and newspaper ads, such as the one below, which argued in favor of not discarding your horse thinking “what it costs you to feed it in a year” versus “expenses on gasoline, repairs and storage.”
A similar logic is used today when evaluating the cost of cloud thinking about the cost of what we are used to instead of thinking about betting on the future.
It is curious that this type of evaluations are only common in Cloud projects. There is no such tendency to try to justify the viability of a project, for example, when we compare whether it is developed in Java versus Python or if a MySQL or a PostgreSQL database is used.
Next, we will see how the cost of running your projects in Cloud compared to on-premise compares, the possibilities that the new billing models bring to the financial departments and all the facilities with respect to the price offered by the cloud.
TCO (Total Cost of Ownership)
The most common method to decide if it is better to go to cloud or stay on-premise, is usually the analysis of the TCO (Total Cost of Ownership).
In the total cost of ownership, all direct and indirect costs are contemplated. And for this, among others, the costs that occur in: servers, storage, network equipment, electricity, refrigeration, licenses, land cost, security of the facilities, administration and operation personnel, audits and compliance of standards, insurance, etc. etc.
The main problem with this type of calculations is that factors of a very different nature are generally compared and there are others that are not directly taken into account.
Many of them because they are hidden costs that are not identified as the costs of implementation, training or scalability. Others because they are not easily quantifiable in economic terms: innovation, agility, flexibility, transforming potential…
Another reason why this type of analysis is meaningless is that the calculation of the TCO is usually “cooked”, in one sense or another, so that the final number approaches a specific result.
For example, it is very easy to make the Cloud infrastructure always come up as the winner if we have to get the return of investment from the physical machines only for a couple of years. And, conversely, if we establish 10 years of amortization for the on-premise infrastructure, it will be more economically advantageous, even at the expense of working with obsolete technology for a long period.
OpEx vs CapEx
Cloud changes the way we compute these expenses in companies. The investment in servers for a datacenter is considered CapEx, that is, expenses in fixed assets with an initial outlay that is amortized or depreciated during its useful life.
In contrast, consumption in a public Cloud is computed as OpEx, that is, as an operational expense that occurs regularly, such as electricity or water.
From the point of view of an IT department, purchasing products and services under an OpEx model offers very clear advantages, starting with the fact that they are cheaper.
It is easier to obtain approval for a budget of a few thousand euros per month than an expense of several hundred thousand. It is not necessary to make any previous investment. There are projects for which it would not make sense to buy a few servers for a temporary development and then not use them.
It is also much easier to measure and explain the benefit of a given expense: “We have used 5 TB of storage during this week to perform analytics and we have spent 20 euros” (real example).
In this way, measuring the ROI is much simpler than determining how the company benefits directly and indirectly from an investment of one million euros in a CPD.
Business also takes advantage of this way of managing expenses. Not having a complex depreciation of products over time is very easy to manage, if you use X you pay X.
It is practically impossible for a company to know 5 years in advance what their IT needs are going to be, the direction the technology will take or what future market demands will be.
The rhythm of constant evolution of technological needs increases the risk of making a wrong decision. But in Cloud this risk is minimized since we can increase or decrease the resources according to the demand of the moment.
And if a product line should be deployed quickly, it allows you to have what is needed instantly, without having to go through long approval processes, contact suppliers, negotiate and implement what is necessary…
And then there’s the opportunity cost: in what other purpose could the time, space or money that your on-premise infrastructure require have been invested?
What does the cloud offer in terms of price?
The cloud price model is designed to be comfortable for the customer. It is paid according to the resources that are cosumed.
The cloud allows increasing or stopping an instances on demand, in a second’s time. And it includes a free layer in which you can use a series of resources and services at no cost.
It is not necessary to make payments in advance or commit for a period of time to get good prices, although you can do so to get bulk discounts.
Depending on the continuous consumption, discounts are also applied automatically. As consumers, we can benefit from the economies of scale of Cloud providers and the frequent price reductions they offer.
In addition, we offer advice and recommendations to size the machines in the most optimal way in relation to the load they support. And there are other saving formulas such as creating ephemeral environments using spot or preemptible instances.
Technologies with which you save
In Cloud there are also technologies that allow you to make better use of infrastructure resources. Managing your old datacenter using an IaaS, implementing a PaaS in it or building your development environments on container clusters can allow you to maximize your IT resources.
The level of automation provided by Cloud solutions together with practices such as infrastructure as a code, means a clear saving in operating costs. And you get a higher level of quality since the availability levels of cloud (practically Zero-Downtime) are very difficult to achieve on-premise.
Cloud is always cheaper because of the direct savings: you only pay for what you use, you can turn off the machines when you do not use them or adapt their size according to what you need at any moment, you have the ability to deploy a global infrastructure in seconds without any previous investment and, thanks to everything that comes out of the box, you can do without most of the expenses in security, maintenance and operation.
But above all, Cloud is much more profitable. Traditionally, IT departments have dedicated more than 70% of their time to maintaining their systems and only the remaining 30% to innovation or proactive tasks that have a direct impact on the business.
This is something that Cloud changes completely. It allows you to invest your time and your money in what really adds value. It allows you to launch your projects immediately, allowing you to be at the forefront.
It accelerates innovation because it allows you to try different solutions quickly so you can choose which ones to avoid expensive mistakes.
Now is the time to take advantage of all the benefits that Cloud technologies bring. A budget should not be a drag on innovation and the agility of your business.
It’s time to retire your old datacenter and bet on the future that has just arrived.