Cloud primer

How we pay for services

Existing model

Under the existing model, costs are usually managed at the infrastructure level. Your organisation purchases all of its infrastructure upfront - servers, storage, networks, licenses, etc. - and is responsible for its management. The original purchase of the equipment is an effort-intensive spend exercise funded from your Capital Expenditure (CapEx) budget. The cost of operating your infrastructure – such as power, hardware support and license renewals – is paid through your Operating Expenditure (OpEx) budget.

Your organisation is responsible for maintaining all infrastructure and software assets through their support lifecycle, and refreshing them when they are no longer supported or sufficiently functional. This results in a continuous pattern of refresh activities, usually staggered by asset type to reduce the burden on your budget and staff.

The cost of operating the entire infrastructure platform – compute, storage and network services and software – can be calculated with a reasonable degree of accuracy, as each type of infrastructure component is only updated every four to seven years. However, accurately estimating the cost of running a specific service without considerable effort to ‘cost slice’ across the entire technology stack is a time-consuming task that is rarely completed. 

Cloud services

Under the cloud service model, costs are usually managed at the service level. In most cases, cloud services are purchased on a subscription, or consumption basis, and are paid through your OpEx budget. This is because you are paying to use a service, and not purchasing an asset.

Subscriptions: a monthly subscription for services such as Office 365, or PowerBI.

Consumption: a cost based on service usage, which is charged by:

• time: services like virtual machines (VM) and database instances are charged based on units of time. For virtual servers, you pay a set fee per hour (or fraction of an hour) which is calculated based on the performance characteristics of the server
• invocations: these services are charged based on the number of times the function is used. The prices usually change on a sliding scale, becoming more cost-effective as usage increases