Understanding the Cost of Cloud Computing

Read Time: 3 minute(s)

Cloud computing’s cost structure is a mix of several crucial factors. Knowing these factors helps businesses transition to cloud-based solutions and manage their expenses effectively. Here, we’ll break down the three main components of cloud computing costs:

  1. Compute: Cloud service providers offer an array of compute instances, each differing in CPU resources, memory capacity, and additional features such as quick networking or graphics acceleration. The cost is determined based on the number and type of instances utilized and their operational duration.
  2. Networking: Most cloud services charge customers according to data transfer volume, whether inbound (ingress) or outbound (egress), or both. Additional fees may apply for virtualized network services like static IPs, load balancers, and gateways.
  3. Storage: Cloud providers deliver storage as a service. With elastic storage services, customers pay by the GB-month for the actual storage utilized. For managed storage services, like managed disks linked to compute instances, customers pay for the entire storage volume, irrespective of the used storage quantity.
Comparing Cloud Costs and Traditional Infrastructure Costs

Costs associated with establishing and maintaining on-premise infrastructure typically fall into three categories:

  1. Capital Costs: These include server software, licensing, hardware, network infrastructure, storage environments, and backup systems.
  2. Operational Costs: Support for server and network infrastructure, storage warranty, data center facilities, existing system administration labor costs, and IT staff training and turnover all contribute to operational costs.
  3. Indirect Business Costs: This category encapsulates both planned and unplanned downtime.

A common rule of thumb is that for every dollar spent on infrastructure enhancements, companies can expect to spend approximately $2 on the management, maintenance, and security of the extended infrastructure.

To compute their total costs for cloud migration and adoption, organizations must first conduct an extensive audit of their existing IT landscape, taking into account both direct and indirect expenses. For instance:

  1. Direct Costs: Hardware, software, management, maintenance, staff, and physical facilities constitute direct costs. These costs are typically straightforward and easy to estimate.
  2. Indirect Costs: These often include productivity losses due to factors such as server downtime, lost customer trust, and reputational damage. Predicting and estimating indirect costs can be more complicated.

In summary, understanding the cost of cloud computing requires a comprehensive analysis of various factors, from compute and network usage to storage needs. Comparing these with traditional infrastructure costs can give organizations a better understanding of their potential savings and expenses when migrating to the cloud.

Try our live demo to discover how CloudMonitor, as a FinOps Certified member, can help your organization in saving money on cloud cost spending.

Rodney Joyce

Subscribed! We'll let you know when we have new blogs and events...