The Real Costs of Cloud Computing

Smart companies plan ahead to avoid gotchas that can blow holes in their budgets.

Most experts agree: The cloud is moving past the hype stage and starting to deliver tangible benefits, primarily increased flexibility and agility.

But moving to the cloud can also mean added costs, some of which are unexpected, according to IT executives whose organizations have implemented or are considering cloud services.

While these costs wouldn't necessarily prevent companies from getting real business value out of cloud computing, they could have an impact on the overall cost-benefit analysis of cloud services.

Moving and Storing Data

It can cost tens of thousands of dollars per year to move large volumes of data to public cloud services and to store that data for long periods of time. Many companies might not be aware of the expenses involved.

"A one-time move can [cost] thousands of dollars," says Hernan Alvarez, senior director of IT and operations at WhitePages Inc., a Seattle-based company that provides online contact information for more than 200 million people and 15 million businesses.

Network bandwidth accounts for much of the cost of moving data: Cloud providers might charge upload and download fees. And even though data and systems are being hosted off-site, there are internal labor costs. "People think there are no labor costs [with the cloud], but as you scale up [to] handle workload, there's a complexity with managing large numbers of cloud instances, just like managing a large number of servers," Alvarez says. Another big cost is for long-term data storage in the cloud. "When you consider the data growth rates over the next three years, the life-cycle cost of data can be really high," Alvarez says. "You continue to pay for that every month" when data is stored in the cloud.

But these costs are "only unexpected if you don't fully comprehend the cloud model," he says. "If you think about CPUs, capacity and storage [needs] and chart that over time, you can get a pretty good handle on what the costs are and if you can do it more cost-effectively internally."

WhitePages considered using the cloud for data backup, but after extensively evaluating eight vendors, the company determined it would be too expensive -- as much as three to four times what it would cost to keep data internally, Alvarez says. So the company opted to handle long-term data storage on-site, in its private cloud.

In general, though, using public cloud computing for purposes other than storage eliminates the need to deploy and maintain applications internally. WhitePages has been using public cloud services for about two years and now uses 11 cloud-based applications from, SuccessFactors, ADP, WebEx, Yammer and other providers. This has led to savings that greatly outweigh any of the unexpected costs, Alvarez says.

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