Cost Benefits of Cloud Computing


Cloud Computing is a “newsworthy” term in the IT industry in recent times and it is here to stay!

Cloud Computing is not a technology, or even a set of technologies — it’s an idea. Cloud Computing is not a standard defined by any standards organization.

Basic understanding for Cloud: “Cloud” represents the Internet; Instead of using application installed on your computer or saving data to your hard drive, you’re working and storing stuff on the Web. Data is kept on servers and used by the service you’re using; tasks are performed in your browser using an interface / console provided by the service.

A credit card and Internet access is all you need to make an investment in technology. Businesses will find it easier than ever to provision technology services without the involvement of IT.

There are many definitions available in the market for Cloud Computing but we have aligned it with NIST publication and with our understanding. NIST defines cloud computing by describing five essential characteristics, three cloud service models, and four cloud deployment models.

NIST's Architecture of Cloud Computing
NIST’s Architecture of Cloud Computing

Ref: NIST

“Cloud Computing is a self service which is on demand, Elastic, Measured, Multi-tenant, Pay per use, Cost-effective and efficient”. It is the access of data, software applications, and computer processing power through a ‘cloud’/a group of many on line/demand resources. Tasks are assigned to a combination of connections, software and services accessed over a network. This network of servers and connections is collectively known as “the cloud.”

Cloud service delivery is divided among three fundamental classifications referred as the “SPI Model,”

Cloud Service Models - IaaS, PaaS, SaaS
Cloud Service Models – IaaS, PaaS, SaaS

Software as a Service is a model of software deployment where an application is hosted as a service provided to customers across the Internet. By eliminating the need to install and run the application on the customer’s own computer, SaaS alleviates the customer’s burden of software maintenance, ongoing operation, and support. Salesforce is very popular Customer Relationship Management (CRM) software that is offered only as a service.

PaaS model makes all of the facilities required to support the complete life cycle of building and delivering web applications and services entirely available from the Internet. Google App Engine (GAE) is an example of PaaS. GAE provides a Python environment within which you can build, test and then deploy your applications.

Infrastructure as a Service (IaaS) is the delivery of computer infrastructure as a service. Rather than purchasing servers, software, data center space or network equipment, clients instead buy those resources as a fully outsourced service. Amazon Web Services (AWS) is one of the pioneers of such an offering. AWS’ Elastic Compute Cloud (EC2) is “a web service that provides resizable compute capacity”.

There are four deployment models for cloud services regardless of the service model utilized (SPI).

Public clouds refer to shared cloud services that are made available to a broad base of users. Although many organizations use public clouds for private business benefit, they don’t control how those cloud services are operated, accessed or secured. Popular examples of public clouds include Amazon EC2, Google Apps and Salesforce.com.

Private cloud describes an IT infrastructure in which a shared pool of computing resources—servers, networks, storage, applications and software services—can be rapidly provisioned, dynamically allocated and operated for the benefit of a single organization.

Hybrid Cloud represents composition of two or more cloud deployment models (private, community, or public) that remain unique but are bound together by uniform or proprietary technology that enables data and application portability.

Community Cloud represents infrastructure is shared by several organizations and supports a specific community that has shared concerns. E.g. FDA compliance needs specific controls where audit requirements can’t be met by other deployment models.

Cloud computing brings efficiencies and savings. The diverse benefits of cloud computing are undoubtedly worth pursuing. Cost-cutting is at the top of most companies’ lists of priorities in these challenging economic times. Having turned from revolutionary possibility into increasingly well-established custom, the cost of ‘outsourcing to the cloud’ is now falling dramatically.

In only paying for the resources used, therefore, operating costs can be reduced. After all, in-house data centres typically leave 85%-90% of available capacity idle. Cloud computing can lead to energy savings too, removing from individual companies the costly burden of running a data centre plus generator back-up and uninterruptible power supplies. Thus it results in reduction of CAPEX & OPEX.

Cloud Computing is in its formative years, but expect it to grow up quick. The prospective of Cloud Computing is mind boggling and the technology and business options will increase exponentially.

Still question remains, how Clouds are beneficial to the enterprises?

  • Focus on core business
  • Cloud computing increases the profitability by improving resource utilization. Pooling resources into large clouds drives down costs and increases utilization by delivering resources only for as long as those resources are needed.
  • Cloud computing is particularly valuable to small and medium businesses, where effective and affordable IT tools are critical to helping them become more productive without spending lots of money on in-house resources and technical equipment.
  • Cost savings
  • Remote access
  • Ease of availability
  • Real-time collaboration capabilities
  • Gain access to latest technologies
  • We can leverage the sheer processing power of the cloud to do things that traditional productivity applications cannot do. “For instance, users can instantly search over 25 GB worth of e-mail online, which is nearly impossible to do on a desktop.
  • To take another example, each document created through Google Apps is easily turned into a living information source, capable of pulling the latest data from external applications, databases and the Web. This revolutionizes processes as simple as creating a Google spreadsheet to compare stock prices from vendors over time, because the cells can be populated and updated as the prices change in real time.
  • Cloud computing offers almost unlimited computing power and collaboration at a massive scale for enterprises of all sizes.
  • “Salesforce.com has 1.2m users on its platform. If that’s not scalable show me something that is. Gmail is SaaS and how many users are on that?”
  • Multi-tenancy enables sharing of resources and costs among a large pool of users, allowing for:
  1. Centralization of infrastructure in areas with lower costs (such as real estate, electricity, etc.)
  2. Peak-load capacity increases (users need not engineer for highest possible load-levels)
  3. Utilization and efficiency improvements for systems that are often only 10-20% utilized.
  • Sustainability comes about through improved resource utilization, more efficient systems, and carbon neutrality.

But, are there any issues with Cloud Computing?

  • The benefits of cloud computing will not be realized if businesses are not convinced that it is secure. Trust is at the centre of success and providers have to prove themselves worthy of that trust if hosted services are going to work.
  • CIA (Confidentiality, Integrity, Availability)
  • Application performance
  • IT Security Standards – There are multiple standards for security protocol for IT systems that have yet to be implemented into cloud computing.
  • Regulatory compliance— the vendor will be required to participate in internal and external audits. They will need to find a way to accommodate auditors from all firms using their service. [FDA Compliance is not feasible yet.]

Let’s consider Facts and Figures before jumping into minor details of Cloud Computing. Compare the annual cost of Amazon EC2 with an equivalent deployment in co-located and on-site data centers by entering a few basic inputs (Ref: Amazon EC2 Cost Comparison Calculator).

Cost Component - Amazon EC2(Public Cloud), Co-Location, On-Site
Cost Component – Amazon EC2(Public Cloud), Co-Location, On-Site

Configuration:

High-CPU Instances: Instances of this family have proportionally more CPU resources than memory (RAM) and are well suited for compute-intensive applications.

20 High-CPU Extra Large Instance (75% utilization) and No. of Peak Instances – 5 with 10% Annual Utilization

  • 7 GB of memory
  • 20 EC2 Compute Units (8 virtual cores with 2.5 EC2 Compute Units each)
  • 1690 GB of instance storage
  • 64-bit platform
  • I/O Performance: High
  • Avg. Monthly Data Transfer “In” Per Instance (GB) -10 GB
  • Avg. Monthly Data Transfer “Out” Per Instance (GB)- 20 GB
  • Region: US-East
  • OS: Linux

Cost Details:

On-site

TCO On-Site
TCO On-Site

Co-Location

TCO Co-Location
TCO Co-Location

Amazon EC2(Cloud Computing)

TCO Amazon EC2
TCO Amazon EC2

Annual Total Cost of Ownership (TCO) Summary

Annual Total Cost of Ownership (TCO) Summary
Annual Total Cost of Ownership (TCO) Summary

Hence … Proved 🙂

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11 thoughts on “Cost Benefits of Cloud Computing”

  1. Hi, Great article and outline of cloud computing and both the cost and productivity impact. Is it possible to send me the cost details? I can’t read them well as posted.
    Thanks

  2. i like this summary it is so good that answer the whole chapter of my assignment. everything is clear expect the cost part on summary. Great thanks

  3. Hello, Really interesting article,Please, could you be able to send the cost details (at least the on-site) by email ? I can’t identify the criteria and their costs. Maybe an email with these images would be ideal! Thanks!

      1. yes I agree with you but for the internal data costs? Please if you could to send me that image. Thanks

      2. i mean when you say on-site you mean the costs to maintain an internal data center in the organisation instead of a cloud solution. right?

  4. Cloud Computing makes me feel insecure in several ways. Security and Privacy is First things That came to my mind, May be hacker is watching over my files , who knows.

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