The Enterprise Cloud: True Cost Reduction, Not Cost Transfer

The Enterprise Cloud: True Cost Reduction, Not Cost Transfer

This white paper by Jay Ethridge and Joe Jezior of Technology & Business Solutions (TBS) explains how public enterprise clouds bring about a true reduction in costs, rather than just a transfer of costs from your system to that of the provider. It’s the third in a series of TBS white papers on cloud computing that will define the enterprise cloud and discuss its benefits, why companies of all sizes, including Google, Microsoft and the Federal Government, are embracing it, and how you can leverage this new technology at your firm.


In our last white paper, we discussed the benefits of a public enterprise cloud versus a private cloud, and stated our belief that public clouds exemplify cloud computing in the best sense, and represent where the market is headed.  One very clear advantage that we see with public enterprise clouds is the fact that they bring about a true cost reduction for an organization, as opposed to a mere transfer of costs from your company to the one furnishing the external infrastructure, as is the case with private clouds.

Most cloud providers that deliver dedicated infrastructures offer nothing more than a cost transfer.  That is, they say they can run your hardware, applications and manage your people better than you can.  But if you’re dedicating equipment or resources to another company’s facilities, you’re still effectively paying for the same infrastructure you’d manage internally, plus now paying a margin (their profit).  The problem with private clouds is that users still have to buy, build, design and manage them, and maintain these liabilities, and therefore do not benefit from lower up-front costs and reduced exposure.

When it comes to cloud computing, cost reduction, not just the transfer of costs, is where real financial benefits are created.

Though many providers say their cloud offers a reduction in capital expenditures, or “cap ex,” a true public enterprise cloud provides much greater financial rewards.  Public enterprise cloud computing allows for real cost reduction, because it enables firms to divest themselves of these Capital Expenses—namely, purchasing servers and employing internal support—and move to an ongoing Operating Expense at a much reduced annual level. This becomes clear when you look at the total costs of any internally managed IT system, or private clouds where hardware, software, and personnel costs are still required.

For internal infrastructures and private clouds these capital expenses include:

  • Software – both deployed at end-user workstations and at the server-level
  • Servers and associated hardware
  • Firewall infrastructure, media, facilities and transmission for nightly back-ups, and in the very best installations, back-up servers for security
  • Facility space
  • And, of course, personnel expenses – salaries, fringe benefits, and consultants.

In addition, internal installations require ongoing maintenance and software upgrades and patches on a frequent basis. And, from a compliance standpoint, typically additional independent IT support is required for SOX and other audits.

Though it is true that depending upon firm size not all of these components may be required for all internal IT systems and private clouds, on average the capital investment for such set-ups runs from $130,000 to $200,000.

Comparable public enterprise clouds may be accessed for as little as 10% of internal or private cloud cap ex. Cost reduction, indeed.

Agile IT – Cost Reliability: Pay for What You Use.

In addition, enterprise clouds empower businesses by enabling them to pay for just what they use, an immense benefit in that this provides cost reliability. This is “agile IT” – a dynamic, scalable, adaptive system that grows and changes as your business evolves and expands. And there are real cost consequences for a lack of agility. A private cloud, just like internally deployed IT systems, is not agile. Both systems are designed, developed and implemented to support your current and expected future requirements. However, change in business is a constant, as nimble enterprises react to market trends, advancing technologies, and emerging growth opportunities. How is your internal or private cloud system poised to support ongoing technology changes? Will your current system be able to support your future needs, or will you have “scrap it” and start over?

With an Enterprise Cloud – cost models are based upon consumption (i.e. number of employees or transactions), so you’re always in control. As you forecast your business changes, you can linearly calculate your cloud hosting costs, as your agile IT resources flex to meet your emerging needs.

Stay tuned. In the coming months we’ll continue to explore “agile IT” and these important cloud computing topics:

To craft an enterprise cloud model tailored to your organization's needs, contact TBS or call 703.444.6562.

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