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There are a lot of threads around asking, “Is cloud computing less expensive than on-premise?” The short answer is: it depends. Here’s a quick outline of the why the better question is which provides more value.

In economics, there are two types of costs in production: fixed costs and variable costs. Fixed costs are independent of the level of production. Buying a server is a fixed cost independent of the number of VMs run on that server. Variable costs are the per unit costs of production. The cost of applying operating system patches is a variable cost, it is dependent upon the number of VMs. Investing in fixed costs, servers supporting higher VM density, creates an economy of scale by reducing the variable cost of providing another OS instance to your customers. This is the production side of cloud economics.

On the consumption side, moving to cloud changes the fixed Capital Expense cost of hardware to a variable Operating Expense cost. Tying the cost of the infrastructure to the lifetime of the project reduces upfront costs.

Cloud Reduces Startup Costs

Reduction in Startup Costs

Spreading the costs over the life of the project does increase the terminal costs of the project, however this is not the problem it seems. With the cloud model, it is also simpler close down when the project is no longer providing the necessary value.

Terminal Costs in Cloud

Increase in Terminal Costs Ameliorated by Easier Shutdown

Combining the lower upfront costs and risk incurred of starting a new project by spreading the cost across the life of the project, it is easier and lower cost to begin more new projects. With the simplicity of exiting unprofitable projects, these new projects carry less organizational risk by lowering incurred legacy. More projects, at lower risk = more value creation, faster. Or, as we like to say in marketing: value creation through innovation.

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F-35C Lightning II

With the deliberate abstraction of hardware from software in the Joint Strike Fighter (JSF) , the US and development partners are creating the potential for realizing the customization and training powers of commoditization we’ve seen in the datacenter server world.

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In Boston this week planning for the new fiscal year, I stayed in a brand new boutique hotel. So brand new that the price was well below any of the local chains, and they hadn’t worked out all of their kinks.

The look and comforts of the room was excellent: clean design furniture, Lavazza in-room coffee, great shower, fireplace, big fluffy towels, the works. It was a beautiful room, and no expense was spared in making guests comfortable in this small but luxurious place. But, then I had to use the room.

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West Village on Georgetown

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Person of Interest is filming in my neighborhood today, and the crew has changed some of the street signs.

I probably would not have noticed, except this happens to be the “famous” corner where Waverley intersects with itself. Remember Kramer getting lost in the West Village and stumbling upon intersection of 1st and 1st?

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Weather be damned, we’re putting the top down!

2013-12-19 14.34.57as seen on Waverly Place @ Gay Street

 

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McRib Model of Cloud Operations


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Good luck to all of today’s travelers. Happy Thanksgiving.

http://www.wnyc.org/story/photos-day-transportation-history-new-yorks-penn-station-opened/

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Sargent vs Velazquez

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http://www.newshelton.com/wet/dry/?p=11995

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Things change… but no so much

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h/t: http://feedly.com/k/1erWJiT

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My future reading room

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