Cloud Economics 101

Feb 5 2012 | by Zev Schonberg

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“It has become conventional wisdom that cloud computing can save you money.”
- Paul Burns, President of Neovise Research

Is this perception or reality? Simply answered, yes, it is actually both.

Understandably, the enticing combination of agility, scalability and cost savings has attached a great deal of hope to the economically favorable potential of cloud computing. The reality is that there are some cost savings that are being and can be achieved with the offloading of resource management and flexibility of the cloud.

In late 2011, however, it became evident that the math of cloud economics needed some refinement. Cloud computing that is not monitored and modified for the needs of a business can end up costing much more for a business than they budgeted or expected.

It turns out that cloud resource deployments can’t always be characterized or allocated using simple models – and the complexity of cloud pricing and provisioning is quickly moving beyond human capacity to comprehend, much less act upon. To forecast appropriately, one must look to cloud economics – based closely on the principles of international economics. Supply and demand, elasticity and performance, business analytics all come into play.

Take for example Jevon’s paradox, that by decreasing the cost per unit – you actually sell a greater number of units of a product. Consider your own company, offered in the cloud at a lower cost, would your product increase in marketshare?
Does this mean every company needs an economist on staff to understand the use of the cloud?

No, but an increased awareness that the cloud is a highly changeable medium on all levels will help organizations understand that cloud is not merely an IT tool, but a business growth medium as well.

In future blogs, we will continue to address how cloud economics comes into play in the management of your resources and the role cloud optimization will take as well.

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