Building a viable budget for cloud expenses is probably a simple matter for individuals who want a persistent record of their family photos.  Business cloud expenses tend to be a bit more complex, however, especially for companies that operate using only cloud-based resources for core operations.  Cloud cost models present a strategic way to sort through this complexity and achieve optimization with thoughtful consideration toward the short and long-term value of resources.

This blog will explain what a cloud cost model entails, and provide the three most popular types, so you get an idea how to choose one (or more). If you would prefer to speak to a cloud expert about specific measures to optimize your cloud offerings, consider our Cloud Consulting Services as an open lifeline.

What is a Cloud Cost Model?

A cloud cost model, or a cloud pricing model, is simply a cost-value model based on the pricing flexibility of cloud-based infrastructure.  On-premises models may depend on acquiring licenses and personnel, and generally require more ownership of assets. Conversely, cloud infrastructure allows companies to take advantage of variable pricing, on-demand services, and versatile storage models to be more inventive with the monthly costs.    

There are varying formulas, but each is based on cost, time, and value.  Note that each of these terms can translate into money: cost reflecting actual expenditures required to operate; time being hours spent and deadlines to meet; and value depending on how much the action (or non-action) affects financial outcomes in the short or long term. Each of these depend on the three sources of cloud costs:

• Computing Power – Platforms that offer virtual CPUs to power applications and workloads will charge fractions of a penny per gigabyte-per-hour (GB/h). A big data store that is used for research simulations is the type of company that would pay close attention to the cost models that offer volume savings for this attribute.
• Networking – Each GB that gets transferred using a cloud provider’s means will cost for volume and length of time. Businesses that require a persistent online presence might focus on this one to guarantee availability for consumers.
• Storage – Even businesses with plenty of on-premises storage will need to consider cloud storage options. Beyond the convenience of using your cloud provider’s storage savings with their other services, there are also more options for disaster recovery.

Common Cloud Cost Models

These are the three most commonly used cloud cost models. They are presented as a general description, since cloud providers will have different features and incentives for cutting costs.

• On-Demand/Pay-Per-Use – The on-demand model leverages high flexibility and simplicity to provide companies without IT infrastructure a chance to use sophisticated technology. It also allows established companies to complete projects using these same features without commitment. Adaptability to the evolving dynamics of growing businesses is the main draw of pay-per-use cloud cost models, with the benefit of long-term discounts being the concession.

• Volume/Commitment Savings Plans – Cloud providers will always offer lowered rates for customers who pay for a lot of resources, be it vCPU, storage, or network traffic. There are often tiers that separate volumes, and since the discounts are percentage-based, the savings escalate as the workload grows.  Saving plans are similar, except the discounts are usually offered for using services within the same platform, or pairing services together that were intended as a package.

• Spot Instances – Spot Instances are similar to buyback programs in retail, in that cloud providers will offer discounts for customers who make unused resources like vCPU.  This model can be seen as the alternative to the plans that rely on availability, since the user is accepting the risk of delay to save money. Spot instance savings depend on the general availability of storage capacity from the provider, so they should only be penciled into any larger plans.

Note that there are many other types of models, but these are examples of types that save based on vCPU, network traffic, storage, or combinations of these attributes. Deciding which fits into your company’s cost model depends on which of these resources is most vital to its success.

Finding Help For Cloud Services

Foghorn Consulting can help you discover all the features that AWS, GCP, and Azure provide for any models you decide to use. For more information, please visit our Cloud Consulting page, or click the button below to speak with us directly.