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Financial implications of the Cloud

Cloud computing is a new style of computing which packages computing resources such as processing power, storage, connectivity etc as a service and delivering the same to the consumer in a scale-free, cost efficient and timely manner over the web. Applications get into production much quicker than the traditional models by which applications are provisioned. This entails a shift in the way applications would be built, executed and also managed in the future.

In an attempt to understand the financial implications of the new cloud based model used for deploying and running web applications over the traditional client server web application model a little better, we shall discuss this in the context of a hypothetical scenario which would highlight differences one would observe in both the cases.




A startup company that intends to have some web presence decides to build a self service web application which shall receive orders from their end customers. From a architectural perspective, they decided to build a simple data driven web application that is easily available over the internet to their customers.  Let us assume that the application designed is a traditional 2 –tiered client server architecture representative as shown in the figure below: 


So what is it that is required to build an application which is available over the Internet? An attempt to mark out some of the key asks are in the list below and classified them under the various costing heads
Capital Expenditure

1.       Construct a physical brick and mortar facility to host the servers including the cabling, USP/Generators to keep the server always ON

2.       Procure a server grade hardware(s) for the client and server setup. In case you have availability requirements then you would have at the minimum two servers that bring in some redundancy to help achieve this. Additionally we would have to include redundant component such as NICs, UPS’s, switches

3.       Software Licenses required to build High-Available web applications Windows Server OS’s, NLB, firewalls and security solutions such as ISA

4.        Additional hardware and software cost required for setting up an available DNS server to  resolve client requesting name resolution

5.       Provision a static IP from your ISP

6.       Database software licenses would have to be purchased

7.       Operations and Management software licenses such as MOM, backup facilities.

8.       Purchase a development system, assuming that you would want to have your development environment separate from the production site

9.       At the minimum Win XP license for developers

10.   Purchase the Visual studio licenses to develop the web application

11.   Purchase the developer edition db license for the persistent storage

Operational Cost

1.       Registering your DNS addresses with ICANN

2.       Per unit power charges for keeping the production systems always ‘ON’  including power consumed by the hardware, air-conditioning

3.       Salaries to maintain and manage the infrastructure

Non-Operational Costs:

1.       Carbon tax for companies running their own data centers

Opportunity Loss:

1.       Sub-optimally utilized hardware

2.       More time to market involved mainly due to the time spend on procuring and provisioning the resources

 Now comparing this to an application which adopts to a cloud based architecture as shown in the figure below



The costs which shall be incurred would include:

Capital Expenditure:

1.       Purchase a development system, assuming that you would want to have your development environment separate from the production site

2.       At the minimum Win XP license for developers

3.       Purchase the Visual studio licenses to develop the web application

Operational Cost:

1.       Per unit charge to use the cloud OS services which will execute the web application

2.       Per unit charge to use the cloud db services

As can be seen a business has been able to considerably eliminate its capital expenditure on IT, resulting in tremendous savings. Savings allows firms to invest in its core business areas that would lead to revenue generation. Moreover in these times of economic recession, credit for businesses is not easily available; hence any savings that businesses can achieve will help them to have that much extra to run the business.

In addition to having direct financial implications in terms cost, the cloud platform also help in enhancing the Time to Market of software applications

Time is Money

It’s an old cliché we all know and understand, but to what extent do we see IT able to support businesses in applying this in principle. Businesses have lost out on opportunities simply because the systems which they have build over the past decade or so have now become inept or non-responsive to cater to the growing dynamics of the business. Their architectures do not allow them to adapt to the dynamically changing requirements or even for that matter be elastic to cater to fluctuating user demand.

Some factors effecting an applications Time to Market:

1.       Time is spent on procuring or provisioning hardware or software while deploying a new application.

2.       Time is spent on procuring or provisioning additional hardware if existing applications have to handle any growth in business such as during mergers/acquisitions, seasonal or market.

The evolution of the Web, SOA and Virtualization technologies have now amalgamated to herald this new style of computing, read more here. The Cloud inherits the intrinsic traits of these three technologies which allow enterprises adapting to this new style of computing build applications which are available everywhere, become agile and elastic to meet fluctuating user demand. It not only extends existing on-premise/hosted applications but also gives opportunities to realize existing architectural patterns more easily or even discover new patterns in which applications get developed, provisioned and delivered. All this in a relatively shorter span of time as compared to the traditional approach of constructing and commisioning applications.


Very well said! Clear and simple but apt in its coverage.
Will like to know more of your thoughts on how evolution of each of three technologies you have mentioned has impacted the emergence of cloud computing.

Thanks Chandan!
First of all sincere apologies for the delay in posting a response. I had been on vacation for the past couple of weeks and hence could not reply. I shall be posting my thoughts on the impact of these technologies in a separate blog post soon.

Hi Sidhart,

Thanks for the post. Could you please let us know url to your 'separate blog' of your thoughts on 'the impact of these technologies'?


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