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The Truth about Saving Money with “The Cloud” – Part 1

The Cloud. It’s all smoke and mirrors . . . or so say the “server huggers.” But can your business really save a substantial amount of money with cloud computing?

Absolutely. The trick is to understand exactly how. We’ll break it down for you in a few easy lessons. 

Lesson #1: Don’t be Fooled by the Price

Ask any Cloud naysayer and they will tell you that they can do it much cheaper than any public Cloud. But what they don’t understand is it all comes down to CapEx vs. OpEx.

Picture yourself in Accounting 101. Remember learning the basics of a balance sheet? CapEx, short for Capital Expenditure, are funds a company spends once in assets that will help it create future cash flows.  Its counterpart is OpEx—or Operational Expenses. These are the day-to-day costs of operating.

When your business goes to a cloud vendor and asks, “How much would you charge me per month for a 16 core processor 64GB RAM server?” don’t be dismayed when the vendor replies, “$1300 per month.”

You might be thinking to yourself, “WHAT??? I can buy that server for $10,000. I can pay for that server with 8 months of your service and use it for 3 years. You’re too expensive.”

But you’re missing what the Cloud vendor is really offering you: the ability to only pay for what you use. Instead of focusing on how big of a discount you can extract from the Cloud vendor, you should be focusing on the ability to turn resources off when under-utilized.

To illustrate what I mean, here’s an example using that same 16 core server.

An application with heavy usage will typically require a large physical server to handle its peak demand (i.e. the 16 core server). While this server will easily handle the application’s peak load, almost no application has a flat utilization curve. As a result, this large, expensive server operates at 15% capacity for 70% of every day.However, the application has to be available 24x7 so if your business uses a traditional, on-site server then it cannot scale down resources in low demand periods.

Instead of buying that server, you could rent a Virtual Server from the Cloud vendor.

The cloud represents all cloud computing technology, such as virtual servers. 

Virtual servers - servers that are hosted in the cloud - save you money by enabling you to only pay for the computing power you need.

A Virtual Server rents out portions of its computing power, giving your business exactly the amount of processing power it needs to run an applicationbut no more. During the applications’ peak time, you use only 4 cores in the server’s 16 core processors. But your peak time, if you remember, is only for ¼ of the day. In the cloud scenario this equates to only 42 machine hours that you ‘rent’ from the Virtual Server.

If you decide to purchase the server and house it at your office, then to run that same application you have to run the whole server with all 16 core processors, whether or not you need all its capacity, for the whole day. In this scenario, you must pay for 96 machine hours.

So with the Cloud vendor, you cut the cost to run your business’ application by nearly 56%! Now you realize that the $1,300/month server cost from the Cloud vendor is only about $600/month.

Why? Because you only pay the Cloud vendor for what you use!

What you haven’t even considered is how much money you would have to pay IT staff to manage an on-site server, and electricity to power the Air Conditioning to keep it cool. You eliminate all those operational costs with the Cloud vendor as well.

Now, what will you do with your newly-found Cloud knowledge?

Well, besides saving your business money, if you want to ‘wow’ your IT friends, tell them you’re migrating from an “always on” traditional architecture to a capacity-based architecture to create your own virtual discount through horizontal scaling. Throw in some cool phrases like ‘16 core processor’ and ‘64 gig RAM machine’ for the dazzle effect. They’ll be impressed, believe me.

For more practical lessons on how the Cloud saves you money, stay tuned for Part 2, “Build vs. Buy: Are you asking the Right Questions?”

About Emily Swartz

As the Social Community Manager at Broadview Networks, I enjoy sharing valuable content across all our social platforms. I particularly love writing for our blog because it gives me the opportunity to share tangible advice on how businesses can leverage technology to gain competitive advantages, control costs, provide superior service, and ultimately improve their bottom line. Find me on Google+

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