Cloud economics

License to kill

Using commercial software and paying expensive licenses is old school and no longer necessary. Cloud provide you with flexibility and you only need to pay for what you use. No investments necessary.

In May I’m sure many of you, including myself, was looking forward to the release of the new James Bond film, with the famous slogan – License To Kill.

Unfortunately, due to Covid-19, this film premier has been postponed but the reality of License to Kill within IT-licenses and infrastructure has never been more important than now.

We are in contact with roughly 150 companies across Sweden every month, mainly to understand where the market is at this point of time and how we need to align to be able to meet the market with their challenges.

In the past few months the market has really changed, most companies are “pulling the handbrake” and cutting down their variable costs, freezing new initiatives etc. What comes to a surprise is the number of licenses many companies have, everything from Office365, different on-premise & cloud platforms which are based on traditional license models which are core based and very expensive.

When buying licenses, with a traditional license model, you buy a capacity up-front which you are planning to use during a longer term, usually between 1-5 years. Of course, during this period, you are able to “scale up” and purchase more cores. But overall you will always be paying for more than you need at the point of time of the purchase.

Traditional on-premise platforms when scaling will have the following effects:

  • Additional cores
  • Additional servers
  • Not fully utilized 
  • Generate additional costs

This is costing companies across the globe huge amounts of money which could be spent on better things or even in these uncertain times also saved.

Here are a few examples:

  • On-Prem infrastructure
  • Integration platforms, Enterprise Service Bus
  • API-Platforms
  • Identity & Access Management platforms
  • Service & Assessment Platforms

The list is long and most likely you are running one or several at your workplace today.

So what’s the solution?

Both from a license and an infrastructure perspective the Cloud is the obvious choice this enables you to both scale up and down. At TIQQE we purely focus on AWS and the capabilities to scaling, not paying up-front license costs, pay for what you need at this point of time are all the key points to moving to the cloud.

Ask yourself if you need to renew your licenses anytime soon. Do you want to buy more licenses or do you want a second opinion?

We have all the tools in place to quickly identify your costs today and what the costs would be if you would instead operate in the cloud.

This blog is mainly focused on a cost saving perspective but there are many more examples what the cloud provides you with.

I really recommend checking the following blogs out:

4 ways of reducing cost and increase liquidity

Cloud economics

“Cloud is expensive”

This is a common opinion among IT managers today. In this post, we will discuss and compare on-prem costs vs. cloud from a more holistic perspective.

We talk with a lot of customers in our outbound sales activities and two of the most common opinions about the cloud is that it is not secure and it is more expensive. We will cover the security aspect in another post and focus this one on the cost part of cloud vs. on-prem.

Is cloud more expensive than running a datacenter on prem? It is not a simple question to answer and there are no generic answers, it depends on a number of factors and the comparison is not a simple task. Several factors needs to be taken into consideration. However, the fact that the majority of the IT managers we talk to consider cloud more expensive shows that the market is still in its early phase.

When asking a couple of follow up questions, it turns out that the comparison often consists of comparing the cost of a server with a similar specified workload in the cloud. That is a too simplistic comparison and the cost of a server needs to be put in a wider context of IT cost structures. When buying a workload from a public cloud provider, a lot of things are included in the cost such as:

  • Facilities
  • Electricity
  • Cooling
  • Support team
  • Insurances (business interruption)
  • Decommissioning, migration and disposals
  • Capacity planning headroom
  • Inflation
  • Discount rate (Internal Rate of Return)

A typical comparison of server costs (red) vs. cloud workloads (yellow). Cloud turns out to be much more expensive

Source: AWS Cloud Economics

A full cost comparison between a datacenter and cloud shows a different picture. Cloud is usually between 30-50% less expensive.

Source: AWS Cloud Economics

Even if a server is cheaper than a similar specified cloud workload, cloud is still more cost efficient than running a datacenter when considering all related IT costs.

Besides lower costs, there are other financial benefits for an organization to move to cloud, for example tied up capital and cashflow.

Cloud providers practice a subscription based business model which means that customers do not need to invest in infrastructure. Almost every organization today have infrastructure which is treated as inventories and an asset in the company balance sheet. The capital tied up in infrastructure could be used for more revenue generating capital investments instead of taking on more debt. There are also rumours around the accounted value of infrastructure assets. Some argue that as cloud providers continue to gain market share, infrastructure in datacenters will be valued less in an event of a financial audit. I can’t find evidence that proves that such a valuation is in practice but it doesn’t seem unrealistic in the future, outdated technology are simply valued less.

From a cashflow perspective, cloud services do not require any upfront investments such as refreshments of infrastructure or software which will have a positive impact on cashflow.

To summarize; yes, a single server is usually cheaper than a similar workload in the cloud but from a holistic perspective, taking all costs into consideration, cloud is much more cost efficient. According to our own experience when engaged with customers, we find potential savings of around 30-50%. Combined with capital and cashflow benefits, all companies should evaluate a transition to cloud.

Besides costs, another common opinion about The Cloud is that it’s not secure. Read Kennet Wahlbergs blog post “Is The Cloud secure?”.