Cloud Computing Financial Fundamentals: Leveraging Economies of Scale

Grazed from Genesis10.  Author: Joe Sclafani.

Ask most information technology (IT) specialists and they’ll tell you that choosing to include “cloud computing” services is more about finance than technology.  Imagine that you acquired an apartment building or an office tower and you rented the entire thing to one tenant.  Their rent would have to cover all of your costs including debt service, maintenance, operations, insurance, and a reasonable profit for you.

If the building contained, say, 70 rentable units you could split that cost 70 ways and charge each 1/70^th of those costs.  Simple.  The exact same analysis can be applied to cloud servers.  Originally when a company purchased a “server” it was to run one operation that all employees could share.  There was a server that enabled users to share files, another to share communications, another to share email, others to share specific software applications…

Over time many companies built an entire “server farm.”  Many developed what is referred to as “server sprawl” where there were just too many servers making it difficult and expensive to operate, manage, and support them all…

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