Heads up to our research subscription clients: Saugatuck has just published a Strategic Perspective that complements and extends the research and guidance presented in our recent (1187SSR, Understanding Cloud Infrastructure Costs: Navigating for Savings, 07Mar2013).
The fundamental motivation for this latest Strategic Perspective stems from an elementary business precept which holds that the best surprise is no surprise. Our objective is to provide sufficient insights and guidance regarding TCO models for Cloud versus traditional IT, so as to avoid surprises such as unplanned costs or inappropriate tradeoff between optional functionality and additional cost.
Our key guidance is as follows: Any useful TCO model must be structured to encompass the dependencies and inter-dependencies across the entire Cloud IT stack, and throughout the entire IT workload being assessed for Cloud suitabilities.
The relative sizing of Capital, Labor, and Fee costs has been a distinguishing characteristic of various IT architectures, configurations, and systems. For example, traditional data centers are typically capital-intensive and labor-efficient. Meanwhile, distributed systems have typically had higher labor costs and lower capital costs.
Cloud IT brings another shift in the relative sizing of these costs. As the names of many Cloud offerings suggest (e.g., Infrastructure-as-a-Service, Software-as-a-Service) capital costs and labor costs are supplanted by costs for services, i.e., fees. As a result: Fees, a relatively minor component in traditional IT costs, become the dominant component in Cloud IT infrastructure costs.
Saugatuck analysis finds that: the high-level categories of Capital, Labor and Fees still represent the whole cost structure of Cloud IT, and that the fundamentals of TCO do not change with the advent of Cloud IT. However, the grouping of cost elements and how they are identified can be different for Cloud IT. As mentioned earlier, a traditional IT architecture consists of assets, tasks, and services; while Cloud architecture is dominated by services or fees. So the costs for Cloud IT will have different line items than the model for traditional IT.
Since enterprise IT organizations are increasingly considering adoption of Cloud-based offerings, evaluations are focused on the costs associated with a traditional infrastructure approach compared to the costs associated with a Cloud-based offering. Given the change in cost line items, as described above, it is critical for any comparison to carefully ensure that cost line items are appropriately grouped and compared.
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