Cloudonomics: The Business Value of Cloud Computing, + Website

CHAPTER 11

More Is Less

It is certainly possible that the cloud is capable of delivering resources and services at a lower unit cost than an enterprise. By “unit cost,” we mean costs for server-hours or gigabyte-months. It is also possible that the cloud costs more on a unit-cost basis, the way that a midsize car that one can own for $10 per day will go for $30, $40, or even $50 per day from a rental car company. Whether the unit cost is higher or lower between cloud service providers and enterprises depends on a multitude of factors.

All other things being equal, if the cloud is less expensive than an enterprise, then an optimal financial decision would be to use the cloud. Counterintuitively, even if the cloud is more expensive on a unit-cost basis, the cloud still can cost less, in terms of total cost. In considering relative costs of do-it-yourself versus the cloud, it turns out that the most important number is not necessarily the cost when you use the cloud but may well be the cost when you don’t: zero.

In the case of the renting versus owning, the two cost drivers are the cost when you use something and the cost when you don’t. Suppose that you are evaluating owning a car for $10 a day versus renting a car for $50 a day. Suppose further that you need the car for three days per month. Over 30 days, the “cheaper” car will cost $300, whereas the “expensive” rental will cost only $150.

In other words, one way to save money is by paying more—some of the time—and paying zero—most ...