Unit

4
Economics in Cloud
Contents
● Cloud Economics :
○ Developing an Economic Strategy
○ Exploring the Costs
○ Laws of cloudonomics
○ Cost estimation
 Cloud
economics!
Cloud economics is the study of
cloud computing costs and
benefits and the economic
principles that underpin them.
 Developing an
Economic Strategy
● Reducing operating costs and optimizing IT environments are pivotal to
understanding and being able to compare the cost models behind provisioning on-
premise and cloud-based environments.
● The pricing structures used by public clouds are typically based on utility-centric
pay-per-usage models, enabling organizations to avoid up-front infrastructure
investments.
● These models need to be assessed against the financial implications of on-premise
infrastructure investments and associated total cost-of-ownership commitments.
● Cloud provides the following key cost savings
○ Infrastructure cost
○ Management cost
○ Power and energy cost
In detail…
1. Visibility on Cloud Inventory
According to a recent survey of IT professionals, 75% report, they lack visibility of their cloud
resources. This lack of visibility into resources in the cloud can lead to poor management of
those resources. Effective cloud cost management begins with an in-depth analysis of your entire
infrastructure. And if some resources in the cloud are going unused due to lack of awareness, but
the organization is still paying for them, cloud costs will climb unnecessarily – and cut into the
infrastructure savings and other financial benefits the cloud can bring. Admins who have access
to a single pane of glass and detailed Resource Dashboards are equipped to better organize,
manage, and optimize that ecosystem across all accounts, clouds, departments, and teams.

2. Cost Analytics
Complete visibility on the cloud services used, the actual usage patterns and trends is the first
step. No matter your cloud environment, in addition to tracking what you have spent, it is
important to project what you will be spending. You need consolidated as well granular details in
the form of interactive graphical and tabular reports across multiple dimensions, time frames in a
multi-cloud environment to correlate data for analysis and reporting against business objectives .
In detail…
3. Role Based Access
Permit users to actively manage the infrastructure after setting an Enterprise-wide mechanism
that clearly defines permissions and accessibility within the platform. Limit the data and actions
visible to users by organizations and roles and identify who launched, terminated, or changed
infrastructure, and what they did to take corrective action and control costs.

4. Controlled Stack Templates

A crucial characteristic of any DevOps team is to enable teams more autonomy over-provisioning
resources without the red tape and extensive time delay of traditional IT environments. If it is
implemented without the accompanying automation and process best practices, decentralized
teams have the potential to produce convoluted and non-standard security rules, configurations,
storage volumes, etc. and therefore drive up costs. Using predefined stack templates,
Administrators can bake in security, network, and instance family/size configurations, so that the
process of deploying instances is not only faster but aligned with the Departmental user’s roles
and privileges and ensures only specific Resources are provisioned.
In detail…
5. Automated Alerts and Notifications
Stay on top of day-to-day changes in your environment, and participate in the critical decision by
sharing standard and custom built reports with details on cost, usage, performance with
stakeholders. Automated alerts and notifications about authorization failures, budget overruns,
cost spikes, untagged infrastructure result in increased visibility and accountability.

6. Budgets
Define and allocate budgets for Departments, cost centers, projects and ensure approval
mechanisms to avoid cloud cost overrun by sending out alerts when thresholds are breached.
Use the Showback report to chargeback Departments for their cloud usage and limit the cloud
cost and use of resources. This alignment of cost with value ensures the anticipated business
benefit once the cloud resources are in production.
In detail…
7. Policy Based Governance
Use cloud-based governance tools to track cloud usage and costs and alert administrators when
the total usage for the account is greater than a certain value or when the total usage for a
vendor specific product is greater than a certain value helps control cost.

Schedule operational hours to automatically shut down & start virtual machines, and automated
events that alert administrators on volumes that have been disassociated from Virtual machines
(standalone VMs) for more than a set number of days.

In short, use integrated data sources, metadata, or custom tags to define a set of rules that lead
to improved cost management, reporting and optimization.
Economics of Cloud Example: On-Site Vs.
Cloud
Buying 1000 Servers (On-Site) Vs. Hiring 1000 server instances (Cloud)

Cost Components Cost Components

Annual TCO = $2,572,634 Annual TCO = $233,213

Source: Amazon Web Services: The Economics of the AWS Cloud vs. Owned IT Infrastructure, Dec 2009
 Exploring
The costs • Up-front costs for the purchase and
deployment of on-premise IT resources
tend to be high. Examples of up-front
Up-Front Costs costs for on-premise environments can
include hardware, software, and the labor
Up-front costs are associated with the required for deployment.
initial investments that organizations need • Up-front costs for the leasing of cloud-
to make in order to fund the IT resources based IT resources tend to be low.
they intend to use. This includes both the Examples of up-front costs for cloud-
costs associated with obtaining the IT based environments can include the labor
resources, as well as expenses required to costs required to assess and set up a cloud
deploy and administer them. environment.
On-going Costs • On-going costs for the operation of
cloud-based IT resources can also vary,
On-going costs represent the but often exceed the on-going costs of
expenses required by an on-premise
organization to run and IT resources (especially over a longer
maintain IT resources it uses. period of time). Examples include virtual
hardware leasing fees, bandwidth
usage fees, licensing fees, and labor.
• On-going costs for the operation of on-
premise IT resources can vary. Examples
include licensing fees, electricity,
insurance, and labor.
 Utility services
cost less even
though they cost
more.
 Although utilities cost more when they are used, they
cost nothing when they are not. Consequently,
customers save money by replacing fixed infrastructure
with Clouds when workloads are spiky, specifically
when the peak-to-average ratio is greater than the utility
premium.
On-demand
trumps
forecasting.
Forecasting is often wrong, the ability to up and down
scale to meet unpredictable demand spikes allows for
revenue and cost optimalities.
The peak of the
sum is never
greater than the
sum of the
peaks.
Enterprises deploy capacity to handle their peak demands.
Under this strategy, the total capacity deployed is the sum
of these individual peaks. However, since clouds can
reallocate resources across many enterprises with different
peak periods, a cloud needs to deploy less capacity.
 Aggregate
demand is
smoother than
individual.
Aggregating demand from multiple customers tends to
smooth out variation. Therefore, Clouds get higher
utilization, enabling better economics.
 Average unit costs are
reduced by distributing
fixed cost over more
units of output.
 Eg:
If:
a) 100 Rs required to produce 10 items
b) 150 Rs required to produce 25 items
we will choose (b) always
as unit cost is less in (b)
They are reduced by distributing fixed costs over more
units of output. Larger cloud providers can therefore
achieve economies of scale.
 Superiority in
numbers is the most
important factor in the
result of a combat.
 Eg:
a) if cloud-A shows 1000 available servers with
1gbps speed
b) if cloud-B shows only 10 servers with 10kbps of
speed.

than we will go for(a) only

 Superiority in numbers is the most important factor in the
result of a combat. Service providers have the scale to fight
rogue attacks.
Space-time is a
continuum.
 Eg:
Must be up-to date as per time.
Never degrade ever.
 Organizations derive competitive advantage from
responding to changing business conditions faster than the
competition. With Cloud scalability, for the same cost, a
business can accelerate its information processing and
decision-making.
Dispersion is the
inverse square
of latency.
 Eg:
If a company has all Datacenters at one region
then that region has good connectivity and very
low latency, but other region will get no service or
very high latency.
High Wide than less latency
Lesser wide than HIgh latency
 Reduced latency is increasingly essential to modern
applications. A Cloud Computing provider is able to
provide more nodes, and hence reduced latency, than an
enterprise would want to deploy.

D=1/l2
 Don’t put all
your eggs in one
basket.
 Eg:
Don’t put all datacenters in one region
 A data center is a very large object. Private data centers
tend to remain in locations for reasons such as being where
the company was founded, or where they got a good deal
on property or a lease. A Cloud service provider can locate
greenfield sites optimally and without such limits of legacy
logic.
An object at rest
tends to stay at
rest.
 Eg:
Datacenters can not be moved from the existing
location
 Reduced latency is increasingly essential to modern
applications. A Cloud Computing provider is able to
provide more nodes, and hence reduced latency, than an
enterprise would want to deploy.
Cloud Cost It help
s to
how m determine
co s t y o
uch wi
ll it

Estimator
u , if y o
happen u
purcha to
se…
An example Oracle cloud Cost Estimation Tool…
There’s one for google too…