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Cloud Economics: Understanding The Financial Aspects of Selecting Cloud Services
Cloud Economics: Understanding The Financial Aspects of Selecting Cloud Services

June 10, 2024

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Every business organisation is digitally transforming itself to enhance its overall operational efficiency and keep a competitive edge over its competitors. Cloud computing deployment is one such digital transformation technology which is assisting every organisation to become agile and seamless in accessing and storing data and timely marketing of new products and services. Cloud adoption is no longer an option but has become a mandate for most organisations. Advanced communication and networking technologies like 5G has created a blend between communication and cloud computing and this is expected to grow further. To understand the impact of this blend, cloud economics is crucial. It helps users to understand the financial impact of cloud computing, communication technology and underlines the point that a strategy of one size fits all cannot be implemented everywhere.

Oracle defines Cloud Economics as, ‘a process of examining the financial and functional impact of cloud computing on an organisation.’ It assists the organisation in analysing the costs involved such as return on investment, total cost of ownership, legacy hardware cost, migration cost etc. while comparing cloud computing costs with on-premises facilities.

Fundamentals to be considered:

The fundamentals to be considered by the organisation while implementing the cloud include:

  • Human resource: One of the most important factors to be considered while bringing any evolutionary change is human resource. The organisation needs to impart training or self-awareness programs to its resources, to ensure that the cloud implementation can be smooth
  • Risks involved: Organisations must consider the risks involved while migrating data from premises into the cloud. They should also consider that; the existing operational process should not be hampered. This risk calculation will further assist organisations to understand the cost risks associated with data migration

Critical points of cloud economics:

The term cloud economics revolves around a few critical points including:

  • Total cost of ownership (TCO): TCO is considered one of the most important factors while implementing cloud computing services. Here, TCO takes into consideration factors such as infrastructure cost, cost of electricity and data centre cooling solutions required to keep the data centres cool. Also, the cost related to hardware, software, maintenance cost, staff salaries etc. With assistance from cloud economics, the organisation can understand the breakup of running expenses such as usage cost, data migration cost, storage cost, human cost, benefits to the organisation etc.
  • Operational flexibility: As the cloud migrates and stores all the data in the data centres, data centres have always been a point of extra caution. The extra cautious approach includes protecting data centres from natural disasters, power outages, data centre downtime etc. thereby creating an impact on the overall operations of the data centres.  Hence, most of the cloud service providers offer uptime service guarantees in their agreements which provides greater operational flexibility to the organisations
  • Efficiency improvement: Cloud service providers offer the organisation the flexibility to improve stronger collaboration within an organisation through DevOps solutions. The improved efficiency will assist the organisation to innovate, automate and market new products and services

Some of key players: Cloud service providers who also conducts cloud economics feasibility studies: (Illustrative)

Benefits: Cloud Economics

The benefits of cloud economics include:

  • Decrease of TCO: The cloud service providers help the organisation with handling hardware and software updates, replacement, repair and maintenance costs, thereby relieving the users of the burden of maintaining the data centres. The users are only left with expenses like maintenance and licensing costs. It also assists the users in seamlessly transferring themselves from a capital expenditure cost-driven model to an operational enhancement model
  • Pay-per-Usage model: Under the cloud economics model, the users normally opt for the pay-per-usage cloud service model. This model helps the organisation to reduce their subscription fees or Capex for the entire cloud usage and allows the users to pick and select a combination of public, private and hybrid cloud services. This also helps the cloud service providers to manage the user’s traffic and charge them, accordingly, thereby freeing the rest of the cloud space.

Organisations hold digital transformation of their assets as one of the most crucial parts of their business strategy and cloud economics plays a key role in optimising cloud investments, improving operational productivity and ensuring cost savings.

Reference’s:

  1. Oracle: What is cloud economics? The Ultimate Guide
  2. LTI: Cloud Economics- Getting it Right
  3. CloudZero: What is Cloud Economics? The Definitive 2024 Guide
  4. MS Azure: Cloud Economics
  5. Crayon: Cloud Economics Assessment
  6. CIO Article: The 3 Stages of Cloud Economics

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Dr Apurva Phanshikar
Business Analyst - Research

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