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While the Economics of Cloud Computing Can Be Quite Compelling, What Costs Need to be Considered?

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While the economics of cloud computing can be quite compelling, what costs (financial and otherwise) need to be considered? Please note, this subject will be covered in-depth at ebizQ's Cloud QCamp right here.

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  • Other than the direct costs of the cloud itself, the most significant cost barriers to cloud adoption that customers will face are...

    1) Switching costs...which can include everything from retooling legacy applications to run on the cloud to retooling IT staff on when and how to use the cloud.

    2) Risks...where the costs are not ongoing, but come upon some performance, security or compliance failure.

    3) Opportunity costs...which are the costs of letting your competition get the upper hand on you, because they are leveraging the cloud and you are moving too cautiously.

    Financial Services companies face particularly high switching costs and risks...I recently wrote this blog post on their specific challenges, but it is generally applicable to other sectors.

    To Cloud or Not To Cloud in Financial Services
    http://xignite.web-services-blog.com/2010/02/thinking-out-cloud-%E2%80%93-to-cloud-or-not-to-cloud-in-financial-services/

    by Joel York
    at http://chaotic-flow.com

  • Joel hit the main cost categories which immediately came to mind. The switching costs category should be examined closely so that all costs are considered. It's easy to miss something there. For example, costs related to understanding your current posture around user id management, data security, and data privacy. Clarity is necessary here in order to explicitly delineate CSP and customer responsibilities in the contract language. That exercise may result in additional cost burdens to implement a public cloud solution to maintain or enhance your current posture.

    In the future, there will likely be costs associated with vendor switching at different levels of the cloud stack (orchestration, hypervisor, software, etc.), adjustments due to shifting standards, and changes to regulations. These are not unique to cloud but in a cloud setting, they present different challenges and the cost components are not necessarily well known.

  • I think there are many ongoing costs that need to be looked at carefully. Switching is obvious and easy to investigate, as too is risks to some extent. However, opportunity costs is a great one to point out by Joel...

    There are also costs and implications with regards to compliance and such complexities as where your data is actually being held. In addition there is always that nagging that there could be security risks - something that many organisations feel they have covered when implementing in house....

    I also think though one issue is ongoing use costs. It is very hard to foresee future costs in this area and your usage may force your costs up to a point where using the cloud is actually costing more than implementing in house...Though there are many benefits with the cloud (regarding cost)there are other models (that are very similar to cloud based) that I personally prefer (at the moment...)

  • Other then the economics offered by cloud computing the following costs also need to be considered. Such as:
    - Migration costs for applications moving to new platforms
    - Hosting and operation cost with a hosting provider
    - Infrastructure costs which include operation, bandwidth and elastic resource cost which are an integral part of the hosting costs
    - Support cost which is bundled into subscription based pricing in addition to the hosting cost
    - Insurance costs in case SLAs are violated by providers
    - Compliance testing costs for ensuring regulatory compliance

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