Cloud economics

Cloud economics compares the true cost of owning infrastructure with paying for it as a service. Know fixed vs. variable costs, what on-premises costs include, licensing choices, rightsizing, automation, and economies of scale.

Fixed vs. variable costs

• On premises, most costs are fixed and paid up front (capital expense, CapEx) whether or not the capacity is used.
• In the cloud, most costs are variable and operational (OpEx): they rise and fall with usage.

Costs of on-premises environments

• Hardware (servers, storage, network), data center space, power and cooling, physical security, and hardware refresh cycles.
• Labor to rack, patch, and maintain, plus software licenses and support contracts.
• Total cost of ownership (TCO) comparisons should include these indirect costs, not just server prices.
• On premises you also pay for capacity you aren't using: servers bought for next year's peak sit idle today.

Licensing strategies

• License included: The software license is part of the hourly price (for example, Windows Server or Amazon RDS for SQL Server with license included). Simple, pay as you go.
• Bring Your Own License (BYOL): Use licenses you already own. Can lower cost but you must follow the vendor's terms; some require Dedicated Hosts. AWS License Manager helps track license usage.

Rightsizing, automation, and scale

• Rightsizing: Matching instance types and sizes to actual workload needs, at the lowest cost. AWS Compute Optimizer and Cost Explorer give recommendations.
• Automation: Infrastructure as code and automatic scaling reduce manual effort, mistakes, and idle resources (for example, stopping dev servers at night).
• Economies of scale: AWS's aggregate usage lets it achieve lower variable costs than a single company could, and AWS has lowered prices many times.