Cost of Public Cloud

There is significant debate whether public cloud provides lower cost for IT operation. The short answer is Yes. The long answer is it depends on size of organisation and how efficient the organisation is today.

If an organisation has reasonable scale it is possible to provide basic on premises infrastructure at lower cost than public cloud, for details see:

http://blog.zorangagic.com/2015/03/build-your-own-cloud-for-3000-vms.html
http://blog.zorangagic.com/2015/03/build-your-own-cloud-for-100-vms.html
http://blog.zorangagic.com/2015/04/cost-comparison-public-cloud-vs-on.html

Yet the promise of cloud is "as a service", whereas previously you had a cast of thousands involved to build an application at great expense and long delivery times, now with cloud you can be agile with use of services to build applications quickly and save you money with much smaller labour costs.

Many legacy enterprise IT shops still use expensive proprietary infrastructure (see below in red) whereas public clouds are built on low cost commodity infrastructure (see below in green):

IT Vendors Gross Profit Margin:

	Revenue (Billion)	Gross Profit (Billion)	Gross Profit Margin (%)
IBM http://goo.gl/DVjJn	90.15	46.4	51.47%
HP http://goo.gl/y6OBj	108.28	26.62	24.58%
Cisco http://goo.gl/FhjYv	48.68	27.77	57.05%
Dell http://goo.gl/ARBIU	56.94	12.19	21.40%
EMC http://goo.gl/6Selz	24.57	15.25	62.07%
VMware http://goo.gl/EkBWd	6.19	5.12	82.71%
NetApp http://goo.gl/1n5Qa	6.12	3.83	62.58%
Oracle http://goo.gl/zZbYc	38.23	31.04	81.19%
Microsoft http://goo.gl/37jZ2B	94.74	59.9	63.23%
Amazon http://goo.gl/OzKxCg	91.96	26.24	28.53%
SuperMicro http://goo.gl/YoMKKn	1.85	0.22554	12.19%
Foxconn https://goo.gl/9gOuYw	97.12	15.26	15.71%

Furthermore IT costs are more than just cost of infrastructure, let's investigate typical cost of enterprise IT:

Infrastructure costs are rapidly declining due to use of commoditised infrastructure and open source, yet legacy IT is stuck with expensive servers, storage and networking that is not capable of being fully automated to take advantage of the software defined data centre. The traditional IT model is heavily fragmented (think servers from IBM, storage from EMC, SAN from Brocade, networking from Cisco, load balancing from F5) and of these services are handled by teams in independent silos. Today there is not one single API interface that marries server infrastructure, storage and networking and the many services that are available with public cloud services. As such the management is very labour intensive and carries a huge cost..

As infrastructure is declining the biggest costs will continue to be labour costs. Because the human labor that will be necessary to manage the hardware infrastructure, operating system, backups, motoring, security, availability, performance, and change in the application the labour costs will quadruple the purchase price every year. Indeed, because the cost of application software continues to fall as the cost of labor rises on a global scale, this old rule of thumb may actually underestimate the true cost.

Below is a simple example how inefficient traditional IT can be compared to small DevOps team with access to cloud services where everything is an API and heavy use of automation:

Above shows that with traditional enterprise IT even the smallest projects take a long time and requires  a cast of thousands. With so many different teams in many different silos you need to coordinate the activities between the team. Many teams will charge to the project, so even a small project can be expensive due to large labour costs in traditional IT silos.

Moving from traditional IT with siloed mindset to modern DevOps model is more of change of IT culture than technology.

Hardware is becoming heavily commoditised and heading towards zero. Operating systems and "glueware" are heading towards free and open source. Hence the largest percentage of costs will be labour costs,  for the CIO to save overall IT cost the following should be considered:

- Heavy use of automation

- Use of services rather than reinventing the wheel

- IT Ops working closely with Developers to help the business

- Devops teams with autonomy to make decisions rather than IT silo mentality

See graph that shows that transistor counts have had exponential growth in the last four decades:

We had similar advances in storage:

IT Infrastructure costs will continue to decline, yet labour costs will continue to rise as a percentage of total IT budget. Hence it is important to focus on:

  - Using cost effective infrastructure rather than expensive legacy infrastructure

  - Enabling staff to be efficient and self manage IT resources
- Eliminate reliance on labour intensive and slow IT silos

  - Heavy use of automation, all infrastructure must be software defined and consistent

  - Analyse total cost of IT rather than just infrastructure costs.