Cloudonomics: The Business Value of Cloud Computing, + Website

Total Solution Cost

The delivered cost of a particular set of resources under a particular pricing scheme is insufficient for a customer to clearly select between alternatives by determining their relative value. There are also training costs, information costs, transaction costs, migration costs, auditing costs, and the like. Also, there are capital expenditures and recurring operating expenses that may be relevant. For example, although the unit cost of a particular industry-standard server or performance-equivalent virtual server might be identical between do-it-yourself or a cloud service provider, as we argue earlier, the delivered price from a service provider might differ from the cost of do-it-yourself based on utilization differences or on additional structural cost elements.

But even if there were no difference, we would need to factor in those information and transaction costs and also consider deltas to other expenditures/expenses. In some cases, these can favor the cloud, in some cases not. For example, network infrastructure or data transport costs can add to the cost of the cloud solution. However, if the data are already in the cloud or in a so-called hybrid hosting architecture involving colocation, hosting, and cloud services, it might be substantially less than the enterprise-owned/dedicated solution.

This discussion implicitly assumes that these costs are known and thus value can be determined. There are two problems. The first is that the chief information ...