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BLOG: The great cloud computing pricing debate

Bernard Golden | Nov. 29, 2011
A continuing controversy in cloud computing is its putative cost benefits; specifically, whether public cloud computing can provide cost advantages over computing carried out within a company's own data center.

A continuing controversy in cloud computing is its putative cost benefits; specifically, whether public cloud computing can provide cost advantages over computing carried out within a company's own data center.

Certainly, billions of bytes have been expended on this discussion, with steadfast advocates for both positions. I have often heard people confidently state that their internal cloud environment is cheaper than the public alternatives. I have even seen spreadsheets proving that an internal cloud has lower costs than the primary public provider, Amazon.

Briefly summed up, the argument in favor of private clouds goes something like this: If one examines the posted prices of Amazon and projects a given application's resource demands to those prices, it seems clear that an IT organization could achieve lower costs running its own infrastructure.

The argument in favor of public cloud computing can be summed up in this manner: cloud providers have greater economies of scale than IT organizations, run extremely efficiently due to automation, and achieve the kinds of cost advantages that adhere to specialists in every field.

Three items crossed my desk over the past week that seem relevant to all participants in the controversy. The first was an interesting set of Twitter exchanges, the second a blog post by Gartner Analyst Lydia Leong, and the third a blog post by Forrester analyst James Staten.

In the Twitter exchange, one person posited the cost advantages of public cloud computing. The person taking the contrary position noted that if Amazon has such efficiency advantages, why hasn't its pricing followed Moore's Law. Moore's Law, if you'll remember, states that the cost of computing drops by 50 percent every 18 months. So, if Amazon is so efficient, why aren't its prices plummeting?

In Leong's blog post, she describes her interactions with clients regarding what actions they should take with respect to cloud computing. She notes that most of her clients aren't interested in "best" practices; they're just looking for "good" practices. Some of these interactions involve "helping a deeply reluctant client think of some token project that he can put on cloud infrastructure so he can tell his CEO/CFO/CIO that he's done it."

Staten's blog focuses on scoring his 2011 cloud predictions, but I will hone in on one quote from an end user contained in his evaluation of the prediction.

Taken as a whole, these vignettes sum up why IT organizations are so challenged by cloud computing and why the economics of cloud computing are likely to be a key battleground upon which the struggle to decide which form of cloud will emerge successful in the future.

Why Amazon's Prices Aren't Dropping

Turning to the Twitter exchange, it demonstrates a fundamental misunderstanding of the difference between pricing and costs, and why making decisions based on current pricing may expose oneself to danger in the future.

 

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