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Cloud Economics: Is Public Cloud Cheaper Than Private Cloud?
- Build Your Own Model with the "5Cs"

Written on November 21, 2011 by Keng Leong

In one of the reports published by IDC, it shows that there are 5 key factors that influence the decision around Public and Private Cloud services, as shown below.

Similarly, you can use the same factors to develop the financial model and business justification for Public vs Private cloud.

1) Cost of hardware is probably the easiest to tackle. One can calculate and compare the cost of computing power (CPU), memory (GB), storage (TB), bandwidth (Mbps), etc. in a private cloud and prices from a cloud service provider.

2) Cost of software licenses is quite a difficult area to tackle as there will be costs associated with planning and negotiation as cloud-friendly software licensing is still a long way to go. Most of it will be written on the fly. In addition, cost of software licenses has a lot to do with the consumption pattern of cloud services and service level requirements. Hence, there could be significant differences in Private and Public Clouds.

3) Cost of Security and GRC will not go away. There may be investments needed to update/upgrade or put in new security and GRC solutions for your private cloud. Similarly, in the public cloud, you may have to subscribe to these services, including eDiscovery, data preservation and production. Lastly, when comparing costs between Public and Private, don’t forget to factor in costs of providing this capability in house vs. outside; as well as cost associated with the risks.

4) Cost for Service level guarantees – costs will go up with higher service levels, be it Private or Public Cloud. However, as in previous case, you need to compare cost of providing the same service level in house vs outsider, and the time frame (opportunity cost), to build and deliver the service level.

5) Cost associated with specific needs of applications include application development, replatforming or modernization to make applications cloud ready and portable. Also there will be costs to integrate the applications and data with the rest of the enterprise business processes.

There will also be other factors that you want to include into the financial model and business justification such as flexibility and agility. In the Public Cloud, one could easily scale back the Cloud service, but for Private Cloud, the idle resources in your data center will be a cost burden if not checked. Size of the organization and how services are being consumed will have impact to the costs as well.

Companies when building their business case need to take into account a whole picture and not just take a myopic view – hardware and software costs. You may be surprised by the end result.

Most analyst reports says Public Cloud is cheaper than Private Cloud. Is it still true?

In most cases, it is cheaper but there are many factors that may change the end result. For example below is another report that shows Private Cloud is more beneficial.

Who is correct?

EMC’s perspective is that an organization needs to take a holistic cloud strategy that optimizes the cloud deployment model of all applications that collectively will provide the maximum returns and TCO savings to IT.