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Cloud Computing Economics. Ville Volanen Packaged Software. OpEx. There are several fixed costs Licence Hardware Datacenter Maintanance staff Scaling is problematic Scaling up can be expensive and require of expertice and time if you need to invest to hardware

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cloud computing economics

Cloud Computing Economics

Ville Volanen

packaged software
Packaged Software


  • There are several fixed costs
    • Licence
    • Hardware
    • Datacenter
    • Maintanance staff
  • Scaling is problematic
    • Scaling up can be expensive and require of expertice and time if you need to invest to hardware
    • Scaling down might not save much as fixed costs stay the same
  • Difficult to estimate costs
  • High barrier of entry


  • Service provider builds and maintains the capacity
    • Hardware
    • Datacenter
    • Maintanance staff
  • Customer pays what s/he uses
  • Scaling is simple
    • Costs of customer depend on usage
    • No investment to hardware required
    • Service provider has less need for scaling (average usage)
  • Costs are easy to estimate
  • Low barrier of entry


datacenter traditional way
Datacenter, traditional way
  • Build datacenter componen by component
  • Each component needs to be handled separately
    • Ordering and shipping
    • Unpacking, racking, installing
    • Maintanance is continuous
  • Lots of skilled labour is needed
  • Increasing capacity increases costs
    • More ordering, shipping, unpacking, maintanance etc
    • New workforce needed
datacenter better option
Datacenter, better option
  • Build datacenter module by module
    • Each module with 1000 (or so) systems
  • Modules need only electricity, network connection and cooling water
    • No unpacking or installing
    • Shipped once (instead of thousand times) and dropped to place
  • Modules are not serviced during their life span
    • Due to high number of systems in module broken hardware has only a small impact of module performance
    • Aged modules are shipped back to manufacturer and recycled
datacenter better option cont
Datacenter, better option, cont
  • Adding capacity has only minimal effect to costs (as long as there is room)
    • No service, installations, etc.
    • Economies of scale drop costs
  • Module assembly can be automated
    • Again, economies of scale drop costs
  • Some extra challenges if the modules need to store information
    • Broken disks are not replaced since there is no service
    • For example networking does not have this problem
is cloud always a good option
Is cloud always a good option?
  • Would it be economical to buy a couple of virtual servers for every day use from cloud?
    • Initial costs would be lower but is that relevant?
  • But also virtual servers need maintanance (install and update apllications, performance monitoring etc).
    • Cost per server could be around €1000
    • Cost per technician could be around €50.000 each year
  • Acquiring a relatively small number of servers from cloud is not necessarily very economical
applications blocks
Applications ”blocks”
  • For example services provided by Amazon and Google for system development
    • Simple databases
    • Data storage
  • Developing similar capabilities from scrath would cost huge amounts of money (datacenter costs plus software development)
  • Allows faster time to market as some blocks are already there. Also development can be done in production-like enviroment.
internal services as cloud
Internal services as cloud
  • Typically cloud computing is seen as a service for external customers
  • Company internal clouds are possible as well.
    • IT department is seen more like an internal service provider
  • This increases control to resources and adds accountability
  • Direct cost savings smaller compared to external clouds due to smaller number of ”customers”
    • Economies of scale
  • Cloud computing can potentially create huge savings
    • Calculations from analysts suggest savings up to 80% in business applications are possible
  • Cost profile is different between cloud and traditional computing
    • CapEx to OpEx
  • Cloud computing is not always cheaper
  • In addition to dropped unit costs cloud can reduce barrier of entry and time to market
  • Architecture for Modular Data Centers
  • The Benefits of Virtualization and Cloud Computing ( )
  • Cloud computing economics (