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Cloud computing costs: do they stack up?

Date

Cynthia Karena

Hidden costs ... figures showing cloud computing is 15 per cent cheaper than a traditional onsite server are flawed, says Macquarie University IT lecturer Milton Baar.

Hidden costs ... figures showing cloud computing is 15 per cent cheaper than a traditional onsite server are flawed, says Macquarie University IT lecturer Milton Baar. Photo: Karl Hilzinger

Cloud computing has the potential to reduce costs, but you need to crunch the numbers to ensure it represents value for money for your organisation.

Divest IT, a cloud computing provider, compares costs of the cloud against traditional IT infrastructure costs. Its calculations show the total cost of ownership (TCO) of cloud computing is 15 per cent lower than the traditional onsite server environment over a five-year life cycle. TCO includes all direct and indirect costs of owning a particular asset.

But do Divest IT's claims stack up?

"Their modelling is faulty," says Milton Baar, a Macquarie University IT lecturer and founder of IT consultants The Swoose Partnership.

"They don't show the cost of downtime due to cloud failure. They don't show the cost of services that may need to be supplied as 'extras'; they don't show the cost of having ISO, SOX [or] COBIT certification; they don't show the cost of the loss of confidentiality, integrity [and] availability due to cloud hosting.

"No cloud provider will provide a guarantee in that area, so it is up to the user and vendor to agree on extra costs to facilitate the protection, and even then it is at no accountability to the cloud provider if something does fail.

"And remember, confidentiality is like virginity, nothing you can do will bring it back once it is lost."

Calculating internal costs is complex, says Arun Chandrasekaran, Gartner's research director. (See Gartner chart.)

"The most difficult cost to calculate is personnel costs. How do you attribute costs to an internal IT team, as some may have multifunctional roles?

"Bandwidth cost is always challenging to calculate. For example, over a five-year period there is no clear idea of what the costs will be, as there is no clear idea of data [needs] over five years."

Most cloud providers will charge you more because they provide a higher level of service backed with guarantees, says Rhys Evans from Thomas Duryea Consulting.

"The focus [for cloud] should be those applications that get rid of the burden from your IT team."

Government warnings and advisories

The Department of Finance and Deregulation has a paper, Financial Considerations for Government Use of Cloud Computing. It advises government agencies to ensure they are not "locked" into a relationship with a cloud vendor beyond the duration of the contract, and to look at any exit costs.

If cloud vendors offer multi-tenanted infrastructure services, where clients co-locate their computing cloud with others, then there may be hidden costs, if arrangements change.

The department also warns against costs associated with increases in service level usage. Monitor usage, for example, by requesting daily reports.

It recently released a policy on data centres-as-a-service, including 35 suppliers selected to provide cloud services to the federal government.

Contracts should be capped at $80,000 and 12 months to reduce the risk of exposure and remove the need for complex contracting and legal arrangements.

Pay as you go

With more and more cloud providers following the lead of Amazon Web Services and charging only for what is consumed, companies are increasingly tempted to consider the model for some or all of their computing needs.

But the decision whether to buy services on a pay-as-you-go basis is still a capital expenditure (CAPEX) versus operational expenditure (OPEX) decision, says Evans.

"We are seeing more customers moving towards a more OPEX-based internal model with leasing agreements allowing them to not wear the cost of the equipment on their balance sheet."

7 comments so far

  • Cloud service costs are always quoted on provision of simple commodity services like Linux web servers . Enterprise systems will never show cost benefits. Common sense says that large organisations can't save money using cloud services. Cost of provision + profit + savings never adds up. What cloud services do is provide flexibility. Sometimes that is worth the premium you pay.

    Commenter
    M.
    Date and time
    December 07, 2012, 6:56AM
    • For a small business, in-house traditional server and portable disc storage, in my view, are good enough.

      For medium-large corporate, perhaps they could set up their own site for CLOUD computing. Afterall, Cloud services tend to be for offside storage of data using all the infrastructure that a medium-large corporate would have access or expertise one way or another. Medium-Large corporate have resources to build a small site for their own Internal Cloud service. To me, Internal Cloud structure makes much better sense.

      For individuals-household, Cloud would be best considered as off site storage for some multimedia files ON THE GO for temporary purposes. For personal files with high significance, own portable storage such as USB drives are still best solution.

      Cloud services, like all new IT segments, will have many players who will compete for businesses. Sooner or later some will fail and fail spectacularly with devastating impacts on those using their services. Given the greediness and low ethics of some, many users would be blackmailed with the threat of cut off from access their own data for higher charges.

      I have a feeling Cloud computing will see high number of failed service providers with accompanying troubles for users. I also have a feeling the laws-regulations will take time to catch up to protect users of their right to access data. This tardiness in law will definitely be exploited by those that have traditionally show little respect for privacy of consumers, including some world-wide brands. Interestingly, it is also these same household world brands that are the loudest advocate of Cloud computing for individuals-households.

      Commenter
      JJ
      Location
      Hornsby
      Date and time
      December 07, 2012, 7:26AM
      • You'd better have a backup in case it rains.

        Commenter
        X
        Date and time
        December 07, 2012, 9:04AM
        • PAAS or SAAS is not for everyone. As a small software developer, I trialled Windows Azure . It turned out to be significantly more expensive than running a hosted box with a reputable hosting provider. The problem I found in this instance was that you pay for CPU cycles, just like ye-olde Mainframe days in the 60's where companies would hire processing time from universities for their systems.

          It's the same today, except there is one very nasty catch. You pay for the O/S CPU cycles as well. This will cost you a fortune. I terminated the trial early on to avoid the charges. This is where I take exception to the billing. You can't charge for un-related O/S only related CPU processing. Cloud is only for big players who will get value for money from economies of scale. Small business, should steer clear.

          Commenter
          Bob Timmins
          Location
          Sydney
          Date and time
          December 07, 2012, 11:23AM
          • How do you make CLOUD computing secure computing. To me you are increasing you risks if you put the in-confidence information that gives your business the competitive edge, in the hands of a third party to float an the ether shared with possibly millions of others. Its like sticking some ultra personal info on Facebook and then being surrised that everyone knows your secret. If you care about security, avoid the CLOUD

            Commenter
            Jane2
            Date and time
            December 07, 2012, 12:11PM
            • Cloud computing advantages are not going to come from a simple comparison of inhouse vs cloud.

              Benefits include
              - Getting up and running quickly. Cloud is chosen by our clients because they get a solution they can just turn it on
              - Flexibility: if you need to change your capacity (constant growth or periods of high demand vs low demand) then cloud is the way to go.

              It is the these types of benefits that matter, that will mean moving to the cloud is for you.

              If you have infrastructure already then migrating to the cloud is not really worth it.

              Then there are a whole of lot people in the grey area in between.

              Commenter
              Flingebunt
              Location
              Brisbane
              Date and time
              December 07, 2012, 12:12PM
              • There is no demonstrable confidentiality or " proprietary" certainty about any data placed in the cloud. Imagine trying to prove confidentiality over data that has been relegated to outer space. No one can prove the information has been kept in confidence, free from unauthorized access. It's an information (IP) proprietors nightmare. Even before the electricity grid goes down.

                Commenter
                Erasmus
                Location
                Dystopia
                Date and time
                December 09, 2012, 12:39PM

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