Comparing Costs Problem

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Overheard at 375,000 water coolers...

"Hey guys, this cloud thing is cool. All we have to do is get an account on the cloud and pay only for what we use."

Overheard in many initial partner planning meetings...

"Ok, cloud is cool. How much will it cost and how much will we save in the first year?"

Recorded on numerous sales calls...

"Yes, we have the safest, fastest and coolest cloud available. How many servers and CPU's do you need? How much memory, diskspace and bandwidth? With this information I can give you an exact price."

Overheard in many followup partner meetings...

"We don't know about CPU's and all that stuff. We've got 4 computers in the closet and a contract to keep them running. Let's table this cloud thing until we can figure this out."

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I know this senario is a little simplistic, but it points out the critical cost decision factor. As I defined in my last post, the first step in Cloud Porting is to decide to move to the cloud. Costs will be one of the first considerations in this decision process.

In the above example the cloud provider views the problem in terms of the computer resource components, which can be measured and sold. The customer views the problem in terms of computers and contracts.

Unless and until there is a easy way to relate these views to each other, there will be a barrier which will prevent a rush to the cloud.

Determining Existing "Computing Power" Costs

In my last post Computing Power was defined as the whole pile of stuff that you use to process information. It includes computers, internet fees, software and everything else. In the above senario what would we have to do to come up with a cost for the 4 computers in the closet? Here's a stab at it:

• 4 servers bought 2 years ago for $12,000 including set up 
• 1 Firewall device for $1,500
• 1 equipment maintenance contract for $2,000 per year
• 1 switch for $500
• Internet Service for $100 per month
• CRM software for $500.
• PBX software for $2,500
• Email software for $1,500
• Miscellaneous $1,000

Total Fixed Costs (Equipment and Software) = $19,500  Amortized over 5 yr = $4k
Total Annual Costs = $3,400   $3k/mo

Which Existing "Computing Power" Costs does Cloud replace

Hardware $4k/yr + Equipment Contract - $2k/yr  = $6k/yr or $500/mo


My next topic: More Calculating Existing Costs

Additional resources:

Pricing - Rackspace Cloud                   Pricing - Amazon Cloud