Cloud economics

Natasha Ong
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4 min read

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In a nutshell:

Consumption based model = you only pay for what you use.  If you don’t use any IT resources this month, you don’t pay anything.
BYOL (Bring Your Own License) lets you bring your existing software licenses to your AWS infrastructure, saving you from additional licensing costs.
Rightsizing means fine-tuning your resources based on real usage data, saving money, and ensuring your applications run efficiently.

The consumption-based model

When thinking about IT infrastructure, there are two types of expenses to think about. Capital expenditure (CapEx) and operational expenditure (OpEx).

CapEx is a one-time, up-front purchase of resources you can see or touch. A new building, repaving the parking lot, building your own data centre, getting printers or buying a company vehicle are all examples of CapEx.

With a traditional data centre, you try to estimate the future resource needs:

  • If you overestimate, you spend more on your data centre than you need to and potentially waste money.
  • If you underestimate, your data centre will quickly reach capacity and your applications and services may suffer from decreased performance.
  • Fixing an under-resourced data centre can take a long time. You may need to order, receive, and install more hardware (this takes weeks and even months). You'll also need to add power, cooling, and networking for the extra hardware.

OpEx is spending money on services or products over time. Renting a convention centre, leasing a company vehicle, or signing up for cloud services are all examples of OpEx.

Cloud computing falls under OpEx, because it operates on a consumption-based model. This means:

  • If you find that you need more virtual machines, you add more.
  • If the demand drops and you don’t need as many virtual machines, you remove machines as needed.
  • Either way - you don’t pay for the physical infrastructure, the electricity, the security, or anything else associated with maintaining a data centre. There are no upfront costs!

Cost savings of moving to the cloud

Moving to the cloud can lead to significant cost savings. It's a BIG reason why companies have been moving to the cloud!

  • By shifting from a capital expenditure (CapEx) model to a variable expenditure (OpEx) model, companies can reduce upfront costs and pay only for the resources they consume.
  • Businesses can scale resources up or down based on demand, optimising costs. No more waiting weeks to bring in new infrastructure, or be left with unused resources in periods when you don't need it.

AWS offers various licensing strategies, including the Bring Your Own License (BYOL) model!

  • Have you ever gone to a BYO at a restaurant? If you haven't, no worries - a BYO means you get to bring your own bottle of wine to the dinner, instead of having to buy the expensive options in the menu. People love BYOs, you get to save money and bring your favourite bottle!
  • AWS' BYOL is the same. AWS lets you bring your existing software licenses to your AWS infrastructure. This is really cost-effective if you already own licenses.
  • AWS also provides instances with included licenses for specific software, which simplified licensing costs for you. For example, you can create EC2 instances that already have a Microsoft Windows Server built in, or an RDS database that uses MySQL.

Rightsizing

In AWS, rightsizing means using just the right amount of cloud resources. Not too much, and not too little!

Rightsizing helps you save money, keep things running smoothly, and easily adjust when you need more or less power. So, in AWS, rightsizing is all about getting the most bang for your buck.

So how does this look in practise?

Imagine you have an Amazon EC2 instance (a virtual server) running your website. Initially, you might choose a larger instance type to make it can handle any sudden boosts in traffic.

  1. Monitor usage: Start by using AWS CloudWatch to monitor your instance's resource utilisation, like CPU and memory. This gives you insights into how much of your EC2 instance's power you're actually using.
  1. Analyze data: AWS Trusted Advisor or AWS Cost Explorer can help you analyse your usage data. Look for trends and patterns in your instance's resource consumption over time.
  1. Rightsize: Based on your analysis, you may find that you're not using the full capacity of your instance. Ooooo, here's the opportunity to rightsize. In the AWS Management Console, you can change the instance type to a smaller one, which matches your actual resource needs.
  1. Save costs: By rightsizing, you're now paying only for the resources you need, not for anything you're not using. This =  saving money while keeping your website nice and available.
  1. Adjust as needed: If your website's traffic increases, you can easily adjust your instance back to a larger size. AWS makes it simple to scale resources up or down as required - remember EC2 Auto Scaling Groups? This helps make sure you're always right-sized. Nice!