Cloud computing not necessarily cheaper

Is cloud computing necessarily a cheaper way to run business workloads than traditional compute?
At the CIO Executive Summit 2012 held in Hong Kong last month, a Fujitsu executive suggested that "The unit of cloud is no less expensive than a unit of traditional compute power."
This can be a puzzling statement. Don't cloud vendors, and occasionally, some CIOs, speak about the dramatic cost savings that the cloud brings due to the economies of scale?
In separate interviews with sister publication Asia Cloud Forum, four senior executives at Fujitsu, Savvis, Rackspace Hosting and IBM shared their thoughts on the topic of cloud economics. The vendor representatives are: Cameron McNaught, senior vice president of cloud and strategic solutions in Fujitsu’s global business group; Mark Smith, managing director for Asia at Savvis; Mark Randall, interim managing director for Rackspace Hosting Asia Pacific; and Matt Wang, vice president of China development Laboratories at IBM China. Interview excerpts below:
Asia Cloud Forum: How can a unit of cloud be no less expensive than a unit of traditional compute?
Cameron McNaught: A lot of people say it's cheaper to go to cloud, but it's not. Over the total cost of ownership, it is. But for the point of a unit of cloud compared to a unit of traditional consumption, cloud is more expensive.

Let me explain with a hire car analogy. You can hire a car that is going to cost you more per hour to have a hire car, but you have the ability to return the hire car, or change the hire car for a different make or model. What's more, you can use the hire car for an hour, for a week, or for a month.


What about the lowered total cost of ownership? Where exactly can IT save costs?
McNaught: When we apply that same commercial model to cloud consumption, whether it's infrastructure, platform or software, the customer has the ability to consume what they want, and turn it back off. And so that's one of the aspects where they can save.

But more importantly, the partnership with customers in the past four or five years, it's the total cost of ownership around cloud. If you take the life of a physical server in a customer's environment, which can be somewhere between three to five years, the whole set of cost to put that server in comprises procurement cost, design cost, implementation cost, and the normal operating cost. Then at the end of that lifecycle, you also need to run a programme to redesign, upgrade, or decommission the server. Whereas from a cloud price, you get all those services built in, and the cloud platforms are continually refreshed, and are continually updated.

Does the use of private and public cloud save or increase IT costs over time?

Mark Smith: One of the most significant benefits of moving into the cloud is very much about the pay per use service subscription model -- you pay based on your consumption, you can much more readily align your IT costs to your revenue drivers, and it's much more transparent in terms of what your ongoing operating costs are. And so the benefits there are around truly utilizing and paying for your actual utilization are quite significant. That works typically when you purchase all your own equipment and you've got your own deployed infrastructure, there is a lot of upwards of 85% of that infrastructure can go unutilized. And so there are significant benefits just around utilization.
Mark Randall: Most organizations have requirements for IT that vary over time, so that in certain periods they need a lot of IT resources, and at other times (night-time, quieter trading periods) they need less IT. Cloud computing gives consumers the flexibility to adjust their IT in line with their current resource requirements. By taking advantage of this improved efficiency, consumers with varying requirements for IT can reduce their costs by using cloud.
Matt Wang: Cloud computing can decrease costs over time. Cloud is a computing resource that works just like any other utilities such as electricity and water. When the utility is shared, the costs get shared, and this will generate cost savings for you. The same applies to private cloud and public cloud. Today, when we share information on the Internet, you can see dramatic productivity increase. I have not heard from anyone saying that "Oh… the internet is such as a burden, we bankrupt some country they would be able to access the internet." This is just about sharing of a utility, which drives down costs. The same applies to cloud computing. When you deploy an application which is shared with everyone, the costs dramatically and disruptively decrease.
Why may some organizations have difficulty realizing cost savings with the use of cloud computing?
Wang: These people should ask themselves: "What do we mean by cloud computing?" If they merely look at infrastructure-as-a-service, for example, and they merely have four bottles of water to be shared among five to 10 people, and in order to manage these four bottles of water into a common pool, you have put on VMware and other virtualization overheads on top of that, you may then incur some costs. But when you [IT infrastructure] reach a certain scale, the cost savings are very obvious