The Cloud Economy: Part 2 – cloud economics from George Reese

A very insightful post from George Reese, author and founder of Valtira and enStratus, on the Economics of Cloud Computing on O’Reilly.  He gives a side-by-side comparison of the cost of Internal IT versus Managed Services versus The Cloud.

Don’t miss his final analysis:

Cloud savings over internal IT jump to 29% without getting into the discussion of buy for capacity versus buy what you use!

Between managed services and the cloud, the cloud provides 18% savings.

While 18% and 29% savings are nothing to sneeze at, they are just the start of the financial benefits of the cloud. It goes on.

  • No matter what your needs, your up-front cost is always $0
  • As the discrepancy between peak usage and standard usage grows, the
    cost difference between the cloud and other options becomes
  • The cloud option essentially includes a built-in SAN in the form of
    the Amazon Elastic Block Storage. The internal IT and managed services
    options would go up significantly if we added the cost of a SAN into
    the infrastructure.
  • Cheap redundancy! While the above environment is not quite a “high
    availability” environment, it is very highly redundant with systems
    spread across multiple data centers. The managed services and internal
    IT options, on the other hand, have single physical points of failure
    as the application servers and database servers are likely located in
    the same rack.

Let’s say, however, that you need 10 servers to handle peak usage
for 1 hour each year and just 2 to operate the rest of the year.
Ignoring the impact of the cost of capital:

  • Internal IT adds another $40,000 in total costs over 3 years.
  • Managed services adds another $144,000 in total costs over 3 years.
  • The Amazon Cloud adds about $24 in total costs over 3 years.

No, that was not a typo. That’s forty THOUSAND dollars against one
hundred forty-four THOUSAND dollars against 24 dollars. And as I
mentioned earlier, this setup is based on an actual Valtira client that
was considering a dedicated managed services option before Valtira
began deploying customers in the Amazon cloud. It is not some contrived

Go, George.  Finally something with numbers.  Thanks for sharing!


Author: Ynema Mangum

Ynema Mangum is an experienced, data-driven principal product manager of mission-critical composable infrastructure at HP Enterprise. Constantly curious, her passions draw her to emerging technologies. She joined HP 6 years ago as a solutions architect for private IT cloud computing. She then served as owner of the enterprise social collaboration domain at HP, responsible for its future direction. Prior to her current position, she was a senior product manager for the massive HP ConvergedSystem 900 for SAP HANA. At SUN, she was a product line manager for cloud computing, responsible for the requirements for common subsystems of the Sun Cloud, as well as user personas, industry analysis, and competitive research. Her product experience also includes building web based database management systems at BMC Software targeted at Oracle, Microsoft SQL Server, Sybase, DB2 and DB2 UDB. Y provides an invaluable hybrid mix of strategist, architect, product manager and product marketer with an unbendable passion for the user experience. Her entrepreneurial experience allows her to understand business as a whole and drives her to make decisions and execute quickly. As an added bonus, she is certified in ITIL v3 best practices for IT and Pragmatic Product Management. Ynema is a change agent. She considers herself a determined influencer and a connector whose collaborative nature ensures success in introducing new concepts and services into the mainstream -- even in the most complex environments. She thrives on doing what seems to be impossible, and enjoys taking calculated risks in her personal life -- snowboarding, skiing, SCUBA diving or wake boarding when the season is right.

2 thoughts on “The Cloud Economy: Part 2 – cloud economics from George Reese”

  1. The economics make sense and the timing could not be better. I am taking my first steps here as CIO of Ingres to have my team move BI infrastructure from our data center into the cloud – at Amazon. Engineering already has proven that our Icebreaker BI Appliance works as expected there, and I expect to reap the benefits of having access to compute power and storage on demand, for this type of production applications. I will be chronicling this journey here:

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