Economics of Cloud Computing

Economics of Cloud Computing

DOI: 10.4018/978-1-4666-4683-4.ch007
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Abstract

Economic benefits of cloud adoption are the main drivers and motivations of making cloud as ubiquitous an IT paradigm as it is becoming. The authors believe cloud computing has the potential to transform a large part of the IT industry; this large transformation of IT has big impact on the economy of IT and the global economy. Public cloud computing can avoid capital expenditures because no hardware, software, or network devices need to be purchased. Cloud usage is billed on actual use only and is therefore treated more as an expense. In turn, usage-based billing lowers the barrier to entry because the upfront costs are minimal. In this chapter, the authors describe the business and economics aspects of cloud computing. They then discuss why cloud computing could be economically beneficial by enumerating its characteristics and giving a few examples. This chapter addresses when and how these economic benefits appear.
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2. Business Model

User self-provisioning of resources in virtualized form, economies of scale, pay-as-you-go basis of consumption and payment are important features and characteristics of adopting a cloud model.

The cloud business model brings in substantial or small profit for cloud providers. They can develop money making services, i.e., there are applications where each $1 invested in development pays off $10 in services. Cloud computing’s goal is not only to reduce costs but also to make more money with better and better return on investments (ROIs).

Business management is always seeking ways to better capture customer loyalty. For example, selling something that the customer need, but including a hook in the product or service that more or less involuntarily tied the customer to the company. As long as a customer is using the product, she has to keep coming back. Printers need ink cartridges just like as razors need blades. Cloud computing inherently has these business management strategies in itself. When an organization’s applications, data, and services move into the cloud gradually that organization will be dependent on the cloud provider offerings.

On the other hand, standardization is an effort to address vendor and technology lock-in and dependency on a cloud provider; hence it seems it is against business management strategies of a cloud provider, but it will bring competition among cloud providers. As a result, since standardization addresses vendor lock-in but provides competition, it is good for the global business management strategies of and global economy of all cloud providers. Thus, more customers will enter to the cloud since there is no vendor lock-in barrier, and providers will provide and guarantee better services to keep their customers up.

Amazon, Microsoft, and Google are frequently dropping prices. The cloud services are not a primary business for any of these companies. Once any of them serve a customer, they have a good chance of holding on to the customer for a long period of time because it is difficult for users to switch cloud service providers.

“The myth is that cloud computing is always cost-effective,” said David Linthicum, Chief Technical Officer (CTO) of Blue Mountain Labs, a company that advises businesses on moving to the cloud.

Clouds bill every user of services, including the internal users in private clouds. No one collects the actual money from internal users, but the Chief Information Officer (CIO) has a clear record of how much they would have paid if they were using a public cloud.

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