Applying cost expenditure models to cloud computing

In the traditional computing model (pre-cloud technologies), hardware resources and software were purchased up front in a one-off lump sum; these business assets would be seen as depreciating assets. This is the CapEx model.

To contrast this to the public cloud computing model, resources that are provided by the cloud platform are shared with others; this means there has been no CapEx to provision hardware, and so you can start using these resources on-demand. These are treated as day-to-day OpEx. The exception is reserved instances; in this scenario, you can commit to paying up front (or monthly) on a CapEx basis to reserve predicted resource usage. This may be more cost-effective over, say, a 3-5 year period than paying on the pay-as-you-go consumption model.

In the case of the private cloud computing model, this is cloud computing technologies hosted on dedicated, single-tenant hardware resources; typically, this is self-hosted on hardware in a facility (or colocation), but may also be hosted with a third-party hosting provider. In this model, there is an element of CapEx and OpEx, the most significant portion being CapEx for purchasing hardware and assets, with usage (and often licensing and software) as OpEx.

The hybrid cloud approach will give the greatest flexibility in the expenditure model, allowing you to decide which resources utilize which expenditure model to best fit the business’s needs:

Figure 2.10 – Application of cost expenditure models

The consumption cost model of cloud computing means not needing to commit large amounts of capital expenditure on depreciating assets. Instead, by keeping that money within the business to use for day-to-day operations expenses and paying for what you need, when you need it, and only for as long as you need it, you can keep your costs much closer to actual demand, rather than over-committing to costs for a predicted demand. When resource demand exceeds predicted demand, the nature of the cloud computing model means you have resources that can be scaled in and out to meet that demand.

This section looked at how the cost expenditure models are applied and the benefit and value of the OpEx model of cloud computing. The following section covers a cloud computing migration use case scenario.