Cloudonomics: The Business Value of Cloud Computing, + Website

Is the Cloud Like Rental Cars?

Whether to buy equipment to deploy in your own data center or rent the resources from the cloud is similar to the buy versus rent decision for homes or cars. Let’s consider the latter.

A typical midsize car can be financed for a few hundred dollars per month. Let’s call it $300. This works out to a cost of $10 per day to own. Equivalently, you could pay cash and depreciate the vehicle at about the same rate. This doesn’t include fuel or insurance.

Instead of the $10-a-day rate, you could also go to a leading car rental service and pay $30 or $40 per day, also excluding fuel and insurance.

To put it more bluntly, the unit cost of a “world-class service provider” costs three to four times as much as that of a do-it-yourself solution. This is true even though such a service provider presumably has enormous economies of scale, highly repeatable service operations, optimized processes, and immense volume purchasing power leverage over automobile manufacturers. Moreover, unlike you, who has your eye on that hot little red sports car at any price, a rental company can populate a portion of its fleet with cars that are attractively priced because auto manufacturers can’t sell them, and often utilizes manufacturer buyback programs where it can sell the car back to the manufacturer.

What’s going on? How are electric cloud services currently cheaper from a service provider than owning the means of production yourself whereas rental car cloud services are more ...