Unit 4

Part B
Economics in Cloud
Contents
● Cloud Economics :
○ Developing an Economic Strategy
○ Exploring the Costs
○ Laws of cloudonomics
○ Cost estimation
 Cloud
economics!
Cloud economics is the
study of cloud computing
costs and benefits and the
economic principles that
underpin/support them.
 Developing an
Economic Strategy

● Reducing operating costs and optimizing IT environments are pivotal/crucial

to understanding and being able to compare the cost models behind
provisioning on-premise and cloud-based environments.
● The pricing structures used by public clouds are typically based on utility-
centric pay-per-usage models, enabling organizations to avoid up-front
infrastructure investments.
● These models need to be assessed against the financial implications of on-
premise infrastructure investments and associated total cost-of-ownership
commitments
In detail…
1. Visibility on Cloud Inventory
According to a recent survey of IT professionals, 75% report, they lack visibility of their cloud
resources. This lack of visibility into resources in the cloud can lead to poor management of those
resources. Effective cloud cost management begins with an in-depth analysis of your entire
infrastructure. And if some resources in the cloud are going unused due to lack of awareness, but
the organization is still paying for them, cloud costs will climb unnecessarily – and cut into the
infrastructure savings and other financial benefits the cloud can bring. Admins who have access
to a single pane of glass and detailed Resource Dashboards are equipped to better organize,
manage, and optimize that ecosystem across all accounts, clouds, departments, and teams.

2. Cost Analytics
Complete visibility on the cloud services used, the actual usage patterns and trends is the first
step. No matter your cloud environment, in addition to tracking what you have spent, it is
important to project what you will be spending. You need consolidated as well granular details in
the form of interactive graphical and tabular reports across multiple dimensions, time frames in a
multi-cloud environment to correlate data for analysis and reporting against business objectives.
In detail…
3. Role Based Access
Permit users to actively manage the infrastructure after setting an Enterprise-wide mechanism
that clearly defines permissions and accessibility within the platform. Limit the data and actions
visible to users by organizations and roles and identify who launched, terminated, or changed
infrastructure, and what they did to take corrective action and control costs.

4. Controlled Stack Templates

A crucial characteristic of any DevOps team is to enable teams more autonomy over-provisioning
resources without the red tape and extensive time delay of traditional IT environments. If it is
implemented without the accompanying automation and process best practices, decentralized
teams have the potential to produce convoluted and non-standard security rules, configurations,
storage volumes, etc. and therefore drive up costs. Using predefined stack templates,
Administrators can bake in security, network, and instance family/size configurations, so that the
process of deploying instances is not only faster but aligned with the Departmental user’s roles
and privileges and ensures only specific Resources are provisioned.
In detail…
5. Automated Alerts and Notifications
Stay on top of day-to-day changes in your environment, and participate in the critical decision by
sharing standard and custom built reports with details on cost, usage, performance with
stakeholders. Automated alerts and notifications about authorization failures, budget overruns,
cost spikes, untagged infrastructure result in increased visibility and accountability.

6. Policy Based Governance

Use cloud-based governance tools to track cloud usage and costs and alert administrators when
the total usage for the account is greater than a certain value or when the total usage for a vendor
specific product is greater than a certain value helps control cost. Schedule operational hours to
automatically shut down & start virtual machines, and automated events that alert administrators
on volumes that have been disassociated from Virtual machines (standalone VMs) for more than
a set number of days. In short, use integrated data sources, metadata, or custom tags to define a
set of rules that lead to improved cost management, reporting and optimization.
In detail…
7. Budgets
Define and allocate budgets for Departments, cost centers, projects and ensure approval
mechanisms to avoid cloud cost overrun by sending out alerts when thresholds are breached.
Use the Showback report to chargeback Departments for their cloud usage and limit the cloud
cost and use of resources. This alignment of cost with value ensures the anticipated business
benefit once the cloud resources are in production
 Exploring
• Up-front costs for the purchase and
The costs deployment of on-premise IT
resources tend to be high. Examples
of up-front costs
Up-Front Costs for on-premise environments can
Up-front costs are associated with the include hardware, software, and the
initial investments that organizations labor required for deployment.
need to make in order to fund the IT • Up-front costs for the leasing of
resources they intend to use. This cloud-based IT resources tend to be
includes both the costs associated with low. Examples of up-front costs for
obtaining the IT resources, as well as cloud-based
expenses required to deploy and environments can include the labor
administer them. costs required to assess and set up a
cloud environment.
On-going Costs • On-going costs for the operation of
cloud-based IT resources can also
On-going costs represent vary, but often exceed the on-going
the expenses required by an costs of on-premise
organization to run and IT resources (especially over a longer
maintain IT resources it period of time). Examples include
uses. virtual hardware leasing fees,
bandwidth
• On-going costs for the operation of usage fees, licensing fees, and labor.
on-premise IT resources can vary.
Examples include licensing fees,
electricity, insurance, and labor.
 10 Law’s of
Cloudonomics
1.Utility services
cost less even
though they
cost more.
 Eg:
Pay-for-Use
if you start an organization with 100k
machines then you may invest crore’s of
rupees, but if you go for cloud utility then
probably you can join there while paying
only in lac’s .
 Although utilities cost more when they are used,
they cost nothing when they are not. Consequently,
customers save money by replacing fixed
infrastructure with Clouds when workloads are
spiky, specifically when the peak-to-average ratio is
greater than the utility premium.
2. On-demand
trumps
forecasting.
 Eg:
Don’t buy the infrastructure before you start.
Win-trump
 Forecasting is often wrong, the ability to up and
down scale to meet unpredictable demand spikes
allows for revenue and cost optimalities.
 3.The peak of
the sum is never
greater than the
sum of the
peaks.
 Eg:
Big-billion value sale(peak of the sum) < sum of the
peaks on other days of sale
 Enterprises deploy capacity to handle their peak
demands. Under this strategy, the total capacity
deployed is the sum of these individual peaks.
However, since clouds can reallocate resources
across many enterprises with different peak periods,
a cloud needs to deploy less capacity.
 4. Aggregate
demand is
smoother than
individual.
 Eg“:
a) 100 people demand 1 service from cloud
b) 1 person demand 1 service from cloud
provider will chose (a) – option because
investment in 1 service will pay more in (a) and
cover maintenance charges.
 Aggregating demand from multiple customers
tends to smooth out variation. Therefore, Clouds
get higher utilization, enabling better economics.
 5. Average unit costs
are reduced by
distributing fixed cost
over more units of
output.
 Eg:
If:
a) 100 Rs required to produce 10 items
b) 150 Rs required to produce 25 items
we will choose (b) always
as unit cost is less in (b)
They are reduced by distributing fixed costs over
more units of output. Larger cloud providers can
therefore achieve economies of scale.
 6. Superiority in
numbers is the most
important factor in the
result of a combat.
 Eg:
a) if cloud-A shows 1000 available servers with
1gbps speed
b) if cloud-B shows only 10 servers with 10kbps of
speed.

than we will go for(a) only

Superiority in numbers is the most important factor in
the result of a combat. Service providers have the
scale to fight rogue attacks.
7. Space-time is
a continuum.
 Eg:
Must be up-to date as per time.
Never degrade ever.
 Organizations derive competitive advantage from
responding to changing business conditions faster
than the competition. With Cloud scalability, for the
same cost, a business can accelerate its information
processing and decision-making.
8. Dispersion is
the inverse
square of
latency.
 Eg:
If a company has all Datacenters at one region
then that region has good connectivity and very
low latency, but other region will get no service or
very high latency.
High Wide than less latency
Lesser wide than High latency
 Reduced latency is increasingly essential to modern
applications. A Cloud Computing provider is able to
provide more nodes, and hence reduced latency, than
an enterprise would want to deploy.

D=1/l2
 9. Don’t put all
your eggs in one
basket.
 Eg:
Don’t put all datacenters in one region
 A data center is a very large object. Private data
centers tend to remain in locations for reasons such
as being where the company was founded, or where
they got a good deal on property or a lease. A Cloud
service provider can locate greenfield sites optimally
and without such limits of legacy logic.
10. An object at
rest tends to
stay at rest.
 Eg:
Datacenters can not be moved from the existing
location
 Reduced latency is increasingly essential to modern
applications. A Cloud Computing provider is able to
provide more nodes, and hence reduced latency, than
an enterprise would want to deploy.
Cloud Cost
Estimator
An example Oracle cloud Cost Estimation Tool…
There’s one for google too…