One of the most attractive aspects of cloud computing is its “pay as you go” pricing model. This can dramatically cut capital expenditures and replace them with operational expenses that offer more control and much greater flexibility to the enterprise. Amazon Web Services’ broad portfolio of solutions and services empower organizations to drive measurable business success including cost savings, cost avoidance, and operational resilience, with dramatic reductions in downtime, improved resource efficiency at the task level and greatly enhanced business agility.
In this blog series, I’ll cover some of these key points:
- What are the business benefits of moving to the AWS platform?
- What are the commercial levers that can help you lower your TCO on AWS?
- How have other enterprises used these levers?
I’m sure you already understand the concept of cloud computing. But let’s start with a short overview, at the start of the value proposition.
A Quick History Lesson
When trying to understand what cloud computing is, and the benefits it provides, think about how the industrial revolution modernized manufacturing processes. Back then, businesses had their own generators to provide electricity. This was a great invention, but it took time to get the generators up and running. Ultimately, businesses were responsible for maintaining those pieces of equipment.
When the power grid was developed, it allowed businesses to leverage the resources already procured by a company, and for a fee, gain access to the electricity needed. This also allowed customers to access any additional enhancements or upgrades made to that power grid.
Let’s fast forward to the 20th century when companies built their own data centers to run their businesses. This required a large, upfront capital investment, a lengthy procurement cycle, and placed the responsibility of creating, running, and maintaining all the hardware and software for the business on a group of dedicated resources.
As a result, businesses had a tough time keeping up with upgrades and introducing new functionality. They were slow to respond to customer needs and changes in the market.
With cloud computing, companies are able to host their applications, mission-critical workloads, and special projects on the infrastructure built and maintained by a third party provider. This allows companies to avoid large upfront hardware investments, and only pay for what they use, similar to a utility. Additionally, customers receive automatic functionality upgrades and access to a platform that has a lot of features.
Cloud computing providers, such as Amazon Web Services, own and maintain the network-connected hardware required for these application services, while customers provision and use what they need via a web application.
Cloud Computing’s Value Proposition
What is cloud computing’s value proposition from an economic point of view? Let’s walk through the typical way that the public cloud provides value to customers. First, let’s assume you have a good view of your predicted demand for IT infrastructure elements, represented by the gray dotted line in Figure 1 below.
In a typical on-premises environment, you would plan for and meet this demand with periodic purchases of hardware and services, ahead of when you actually need it, with large capital purchases. This is often a lengthy prioritization, budgeting, and approval cycle process, shown here in blue. And you hope that you forecasted demand correctly!
What happens if you failed to forecast demand correctly? Variability in potential demand is shown below as a red line. The impact of this variability is that you over-provision and waste resources, shown below in green as an opportunity cost:
Or worse, you’ve under-provisioned and missed out on an opportunity, shown above in the red shaded box.
One of the ways moving workloads to the public cloud helps you to avoid these pitfalls is giving the ability to flexibly buy only what you need, and to scale it only when you need it. This essentially matches supply with demand and saving money by doing so.
In the next article in this series, I’ll discuss the concepts of business agility and operational resilience.
Questions about the concepts presented in this article? Feel free to drop me a line at email@example.com.
Maximizing Your Business Value
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