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The Economics of Cloud Computing: An Overview For Decision Makers

Chapter Description

In this chapter, Bill Williams explores the standard definition of cloud computing to establish a baseline of common terminology. Understanding the essential characteristics of cloud computing platforms, as well as cloud deployment and service models, is critical for making informed decisions and for choosing the appropriate platform for your business needs.

NIST Definition of Cloud Computing

For the record, here is the definition of cloud computing offered by the National Institute of Standards and Technology (NIST):

  • Cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.3

This definition is considered the gold standard of definitions for cloud computing, and if we unpack it, we can see why. First, note that cloud computing is a usage model and not a technology. There are multiple different flavors of cloud computing, each with its own distinctive traits and advantages. Using this definition, cloud computing is an umbrella term highlighting the similarities and differences in each deployment model while avoiding being prescriptive about the particular technologies required to implement or support a certain platform.

Second, we can see that cloud computing is based on a pool of network, compute, storage, and application resources. Here, we have the first premise for the business value analysis and metrics we use in later chapters. Typically speaking, a total cost of ownership (TCO) analysis starts with tallying the costs of each of the combined elements necessary in a solution. Just like the TCO of automobile ownership includes the cost of gas and maintenance, the TCO of a computing solution includes the cost of software licenses, upgrades, and expansions, as well as power consumption. Just as we will analyze the TCO of the computing status quo (that is, the legacy or noncloud model), treating all the resources in the data center as a pool will enable us to more accurately quantify the business value of cloud computing as a solution at each stage of implementation.

Finally, we see that the fundamental benefits of cloud computing are provisioning speed and ease of use. Here is the next premise on which we will base the business value analysis for choosing cloud computing platforms: time to market (TTM) and reduction of operational expenditures (OPEX).

OPEX reductions related to provisioning costs—the costs associated with moves, adds, changes (MAC) necessary to provide and support a computing solution—coupled with reducing the time to implement (TTI) a platform are the principal cost benefits of cloud computing. The former is a measure of reducing ongoing expenses, while the latter is a measure of how quickly we can generate the benefits related to implementing a solution.

Whether it is a revenue-generating application, as in the case of a service provider monitoring network performance, or whether it is a business-critical platform supporting, say, accounts receivable, the measurements used to quantify the associated benefits are essentially the same.

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