How the Cost of Cloud Computing is Calculated

Joe Palian

How Do Cloud Providers Decide How Much to Charge?

You’ve answered all of your executives’ ‘ questions related to “why use cloud computing.” Now, they’re asking whether it’s more cost-effective to go with an Infrastructure as a Service provider (IaaS) than to build your own cloud computing platform. When you ask an IaaS cloud provider for a price quote, it’s important to understand how they set prices for their services. The three biggest cost centers related to a cloud environment include network, compute, and storage.

Network: Cost per Rack Unit
When setting price, cloud providers determine the expense to maintaining the network. They start by calculating costs for network hardware, network infrastructure maintenance, and labor. These expenses are added together and then divided by the number of rack units a business will need for its IaaS cloud. Some of the factors that go into these costs include:

  • Network hardware costs: Each virtual server requires the provider to invest in certain types of network hardware. They buy the hardware and depreciate the cost over each device’s lifecycle.
  • Network infrastructure maintenance: These costs include security tools, such as firewalls, LAN switching, patch panels, load balancers, routing and uplinks – all of the infrastructure that keeps the network running smoothly.
  • Labor: Cost for staff to maintain, manage, monitor and troubleshoot cloud computing infrastructure. This staff should be 24×7 to ensure uptime and availability of the cloud environment.

Compute: Cost per GB of Virtual RAM
Each organization has a unique set of requirements including use of CPU. Most providers calculate the cost of CPU by determining the respective company’s cost per GB of virtual RAM, which includes:

  • Hardware operation: Providers look at the total amount of virtual RAM deployed in their public clouds and then divide that into the cost per rack unit of your hardware. Your costs may include licensing and usage-based subscription costs, depending on your virtual operating system.
  • Hardware acquisition: This computation tells your provider how much it costs to acquire hardware for each GB of virtual RAM that you’ll be using. They also depreciate these costs over the hardware lifecycle.

Storage: Cost per GB of Virtual Disk
Storage costs are similar to compute costs. The provider calculates how much it costs to operate your storage hardware and acquire new hardware for your storage needs.

Shared Costs
Your individual cloud computing infrastructure costs aren’t all that go into your price quote. Like IaaS cloud users, your quote includes a share of what it costs to power and cool the underlying infrastructure for the IaaS platform in the datacenter. Your price quote may also include charges related to software licenses, hosting, support and other service components. Sharing these costs with other organizations in the public cloud is what makes IaaS so cost-effective.

Learn More
Low monthly costs, plus the convenience of having someone else update, patch, troubleshoot and maintain your cloud computing infrastructure, are what make managed services so appealing. Visit Expedient’s Cloud Calculator to compare the cost of IaaS against building your own infrastructure. The next time management asks “why use cloud computing,” show them just how affordable IaaS can be.

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