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How the Cloud Cuts Costs

by on July 12, 2010

Anyone with even the faintest brush with economics knows about the magic of scale. Actually, there’s noting magic about it at all. The principle is simple: the more of something you produce, the less it costs to produce it. The same is true of usage: the more people who use a thing, the lower the cost for each person using it. That, in a nutshell, is the attraction of the cloud for reducing the cost of doing business.

Cloud_savings In an article wirtten last fall, Phil Wainewright tells the story of one Software as a Service provider revealed at  a conference that it had 150 servers servicing 2850 customers, or 5.4 million users. You can imagine what that setup is costing the provider’s customers compared to what it would have cost them if each of those users had to have a copy of that software running locally on their computers.

If you’re looking for a model that’s the opposite of scale, you need not look farther than the classic software approach. Each installation of the product is practically a custom job, which sucks up resources to maintain and upgrade. What’s more, each installation allocates capacity for itself to deal with spikes in demand on its processing power, capacity that goes largely unused most of the time. The whole setup makes the cost of ownership very steep.

Compare that with running software from the cloud where many customers share an infrastructure, which allows the software provider to take advantage of the power of scale to keep costs low. Better yet, it allows the provider to deliver performance and quality that can’t be matched by an organization going it alone. Some providers of cloud services are bragging their downtime for an upgrade is less than five minutes. When was the last time it took that long to do a system wide upgrade of a desktop based program?

From → cloud computing, SaaS

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