Cost of Cloud Computing: Pricing Factors and Examples

With nearly a quarter of respondents spending over $12 million on public cloud annually, cloud computing has become the norm in data management. Each year, more and more companies opt for cloud migration to reap various benefits, including security, scalability, automation, and cost savings. While cloud trends continue to focus on cutting-edge technology and better data safety, choosing the right cloud vendor is becoming more challenging and convoluted. How does one distinguish between different providers? Do Google Cloud benefits trump AWS’s? In this article, we’ll focus on the biggest providers of cloud services on the market, describe types of cloud computing, and try to determine how much cloud computing costs. 

What Do Cloud Services Cost?

The cost of cloud computing is contingent on a variety of factors, including the company’s size, types of services, storage, and others. To quickly gauge the approximate price, you can use the following formula: total cloud computing costs comprise selected services multiplied by unit price and by used volume. The services you select describe the cloud vendor you choose to work with. Unit price refers to the pricing structure you negotiate with the chosen provider. Finally, volume means how much you use the cloud. 

If you’re looking for a ballpark figure, the average cloud computing price is roughly $400 per month per server. By offering more flexibility and scalability, cloud migration aids businesses in cost reduction. On top of that, organizations can leverage the cloud to integrate AI and machine learning use cases as well as take advantage of cloud automation tools. Some companies can also benefit from the hybrid approach that combines the best from both worlds: cloud and traditional infrastructures. 

How Much Money Does Cloud Computing Save?

According to Flexera research, the vast majority of cloud users prioritize cost savings and even assess performance based on cost reduction. However, it’s not as simple as adopting cloud computing and enjoying a lower bill. Organizations need to keep track of their metrics, evaluate performance, and adopt different approaches to achieve consistent cost reduction. 

For example, you may adopt a feature that works for similar solutions but isn’t widely used by your audience. In this case, it’s recommended to remove or decrease this capability to lower the overall cost of cloud computing. At the same time, some popular features might come at a higher expense which drives your monthly bill. To combat this financial obstacle, you can develop solutions to deliver the same functionality without exceeding budget. 

As you implement a cloud service and begin measuring your performance and comparing costs against benefits, you may need to switch to a different provider or change the usage model. In other words, cloud migration is a journey that requires continuous expert analysis and subsequent alterations and revisions. 

When it comes to concrete numbers of cost savings upon adopting cloud services, the number varies from speaker to speaker. The Senior Vice President of Engineering at Oracle Cloud claims that customers save up to 50% after moving their applications to the cloud. AWS experts predict a 31% cost reduction after the implementation of their cloud tools. 

The discrepancy is wide and the lack of a clear answer is explainable. In reality, companies need to adjust workloads, try out different features, and consistently measure their metrics to create a cost-effective cloud strategy. To ensure the development and adoption of an efficient approach to cloud usage, many businesses opt for collaborating with a reliable IT partner. 

Types of Cloud Computing Services

Mainly, there are three types of cloud computing services, varying in the amount of support you can gain from the vendor. However, the more you delegate to the cloud provider, the more control you lose. Depending on your objectives and business model, you can choose between IaaS, PaaS, and SaaS. Keep in mind that the cloud computing pricing structure also fluctuates from one type to another. 

IaaS

Infrastructure as a service (IaaS) is a pay-to-go service that offers organizations access to basic infrastructure capabilities, including virtualization, storage, servers, and networking. While you remain in charge of the operating systems, data, operations, and runtime, your cloud provider handles server configuration and maintenance along with memory storage and networking. 

When to Use IaaS

The IaaS option is ideal for smaller companies that would like to avoid investing in complex hardware and software. Another use case is retaining control over your applications and only purchasing limited functions you need. Providing the same capabilities as traditional data centers, IaaS vendors take over management and maintenance, which makes this option suitable for beginners. 

PaaS

Platform as a service (PaaS) is a solution that covers all the IaaS functions along with middleware, runtime, and operating systems. This cloud service option allows users to develop, run, and manage applications without creating and maintaining the infrastructure. PaaS customers can build applications without worrying about the environment and software updates. 

When to Use PaaS

Designed with developers in mind, PaaS provides a ready-to-use platform to create custom applications. This service can also optimize and accelerate workflows and allows coders to build apps faster. On top of that, you can use built-in components to reduce the amount of coding and deliver high-performance solutions. 

SaaS

Software as a service (SaaS) is the most comprehensive suite that delegates the entirety of application management to the cloud provider—everything from functions that IaaS and PaaS cover to application and data maintenance. This includes software updates, security patches, bug fixes, and any other activities associated with application maintenance. 

When to Use SaaS

Businesses that don’t have the in-house resources to deal with application support and software updates can greatly benefit from adopting the SaaS option. Additionally, this form of cloud usage is perfect for short-term projects that can benefit from affordable assistance. 

IaaS vs PaaS vs SaaS: Overview

Pricing Models

Pay-As-You-Go

Pay-As-You-Go (PAYG) or On-demand model is a cloud computing cost model that charges companies based on how many resources they have actually used in one month. This option is a great starting point for newcomers albeit tends to generate higher bills compared to other models. Pay-As-You-Go is also a helpful approach for businesses with unpredictable usage rates. 

Reserved Instances

Reserved Instances is an ideal pricing model for companies with unpredictable workloads. The client signs a one- to three-year agreement to reserve resources for the duration of the contract. Reserving a minimum capacity needed, clients can benefit from a discounted price. Assuming you don’t experience sudden traffic spikes, this model will lower your cloud computing price from 50% to 75% compared to the on-demand option. 

Spot Instances

Although not the most reliable, this option can potentially save the most money. Spot Instances operate through a bidding process—customers determine the maximum price they are willing to pay for the services and the provider goes with the highest bidder. While this approach may save you up to 90% compared to the Pay-As-You-Go model, it requires continuous bidding. Besides, there’s a chance that you will not win the bid and the discounted price will go to someone else. Spot Instances is a great solution for businesses with non-critical workloads. 

Subscription

The Subscription model offers several tiers, each with its own set of features. Once you pay a monthly fee for a certain package deal, you will gain access to the included resources for one month. Later, you renew your subscription and continue using the services. This approach works for organizations with a high level of predictability when it comes to usage rates and workloads. 

Hybrid Model

The hybrid model refers to combining two or more strategies. Many businesses decide to couple Reserved Instances with Pay-As-You-Go. This way, they benefit from discounted pricing of the Reserved Instances approach while combating traffic spikes with the PAYG model. 

Consider Other Costs and Benefits

Outside of purchased services and tiers, there are other costs that might come up when executing cloud migration. From the costs of data transfer and infrastructure to licensing and software, moving data to the cloud does come at a price. 

Potential Downtime 

It’s true that cloud services are usually more reliable and stable compared to the traditional setup. However, you are relying on a third party, and outages can happen to anyone. For example, Amazon experienced a blackout in 2017 which disrupted numerous businesses. Take this into account when considering whether you should migrate to the cloud.

Legacy Systems

Companies that have legacy parts should keep in mind that their systems may not be suitable for cloud migration. They require changes in the code to make them cloud-ready. Consider working with a trustworthy IT partner to prepare your systems for the change. 

Scalability Pitfalls

Businesses choose to migrate to achieve scalability and seamlessly grow without worrying about their infrastructure capabilities. However, being able to easily scale up and request additional computing power may lead to sudden cost increases. It’s vital to develop an effective strategy to keep your expenses under control. 

Despite some challenges, cloud services offer a slew of advantages. From improved flexibility and cost savings to upgraded cloud data security, you will certainly gain a lot. Ultimately, companies have a chance to delegate management and maintenance of their infrastructure to the field experts while concentrating on their core business processes. Here are more benefits of migrating to the cloud: 

• Increased scalability
• Enhanced automation
• Easy of use
• High performance
• Elevated security 
• Full-proof compliance
• Lower costs

Cloud Providers Pricing Comparison

Among the big players in the cloud market are AWS, Azure, Google, IBM, and Oracle. In this section, we will discuss their pricing models and determine which approaches are suitable for you. 

Amazon Web Services (AWS)

AWS is a well-established cloud provider and a leader in the industry with a 32% market share The company offers three main solutions to cover cloud computing needs: 

• Pay-As-You-Go allows users to scale up and down as their demands change. Based on software, storage, app, and memory used on the server during a certain time period, the customer receives a monthly bill. The functions you didn’t use throughout this period don’t make their way into the final bill. Examples: AWS Lambda and Amazon Lightsail. 
• Pay Less by Using More is a plan that offers more optimization for customers who use more resources. Basically, you can get a discount by purchasing additional services. This cloud computing pricing strategy is fitting for larger companies looking to expand and save on expenses. Examples: AWS Snowball and Amazon Glacier. 
• Free Tier is an AWS free trial package that allows users to test the services for a year completely free of charge. However, unlike the services, cloud specialists aren’t free. Make sure to hire seasoned cloud computing cost strategists to perform the setup and maintenance. 

Azure Cloud Services

Second-largest cloud vendor after AWS, Azure Cloud is a service provider of choice for 95% of Fortune 500 companies, including Coca-Cola, Walmart, Toyota, and others. Let’s take a look at how the price of cloud computing is structured at Azure: 

• Pay-As-You-Go is a pricing model also offered by Azure. In the same vein, users only pay for what they have used throughout the month. 
• Reserved Instances allow clients to reserve capacities for services like virtual machines and databases. This approach delivers convenience and cost savings for companies seeking a long-term commitment. 
• Software Licensing fees are charged when a user opts for certain services, like SQL server on a virtual machine.

Google Cloud Platform (GCP)

Although in the AWS vs. Azure vs. GCP comparison Google Cloud is behind Azure and AWS in market share at 10%, it’s showing faster growth compared to its competitors. While AWS’s growth rate is 33% and Azure’s is 40%, Google’s metrics reached 45%. Here are the core cloud computing pricing models of the Google Cloud platform: 

• Pay-As-You-Go is also offered in the Google Cloud suite. Giving the possibility to pick and choose services on the go, this pricing model provides much-needed flexibility for organizations. 
• Committed Use is an option suited for companies that require long-term cloud use. By signing for a longer period of commitment, businesses can leverage the greater savings to grow and expand. 
• The Free Tier is a trial plan for newcomers who receive $300 worth of credits that they can spend on various cloud services. This option allows businesses to try out different functions and features to make sure Google Cloud is the right vendor for their needs.

IBM Cloud 

Launched in 2006, IBM Cloud is another prominent provider that targets mid-sized and large corporations. Here are the company’s three main propositions: 

• The Consumption-based model is an analog of AWS’s pay-as-you-go approach. The clients are only billed with the resources they have used over a period of time. This cloud computing cost structure allows businesses to utilize necessary services as needed. 
• The Subscription-based approach enables access to all the resources included in the subscription plan. Customers are charged a monthly fee and can use the available features as much as they want and need. 
• Reserved Instances is another pricing model in which users choose a one- to three-year contract to reserve a certain capacity. Additionally, they can reserve up to 20 virtual server instances. This plan guarantees the reserved capacity to the user for the entire duration of the agreement. 

Oracle Cloud

Finally, Oracle Cloud wraps up the list of cloud market leaders. A relatively new solution launched in 2015, it’s currently behind the aforementioned technologies in terms of popularity—yet Oracle has a lot to offer. Let’s examine Oracle’s main cloud computing cost models: 

• Pay-As-You-Go is a model in which customers are charged only for the consumed resources without a long-term commitment. 
• Monthly Flex is a form of subscription model that offers customers a certain amount of credits per month. Based on the size of the agreement, businesses can take advantage of discounts and bonuses to maximize savings. 
• Bring Your Own License is a pricing plan for existing Oracle clients who wish to move their infrastructure from on-premise to the cloud. 

How Much Does Cloud Computing Cost?

Finally, how does one determine the price of cloud computing? Let’s investigate the main pricing factors as well as hidden costs that can increase your cloud bill. 

Audit Your Current Infrastructure Cost

Before considering any cloud services, it’s imperative to closely examine your current infrastructure condition. During the audit, analyze how well your systems perform and which parts drive up the overall bill. Let’s break down the costs into two main elements:

• Direct costs of infrastructure are expenses associated with hardware and software along with licensing, maintenance contracts, and other related costs. 
• Indirect infrastructure costs comprise operational expenses. These include money spent on cloud professionals, server cooling systems, rent, repairs, and more. 

Pricing Factors: Calculate the Cost of Ownership

To predict the cost of cloud computing for your enterprise, you can use one of the available calculators that all of the aforementioned companies offer. However, keep in mind that this tool will only give you an estimation. There are several factors that will influence the cloud computing price: 

Networking

Networking costs consist of expenses driven by data transfer, bandwidth usage, and systems that tether services and locations within the infrastructure. Basically, the more data you transfer and bandwidth you consume, the higher your bill will be at the end of the month. That’s why you should look into special discounts and offers that provide lower prices for businesses that operate with large volume. 

Storage

As the name suggests, storage costs are expenses determined by how much data needs to be stored as well as the type of data storage selected. Different pricing models are provided for various types of storage systems such as file, block, object, elastic, etc. When choosing a vendor, take into consideration what data you need to deposit and in which volumes to identify the best strategy. 

Hardware 

Cloud computing costs associated with physical infrastructure are referred to as hardware costs. These encompass servers, hard drives, and other physical equipment. Here, due to economy of scale, the larger the provider, the lower the expenses. 

Maintenance

Similarly, all the aforementioned physical and virtual systems require continuous maintenance. Costs connected with auditing and fixing hardware, software, and infrastructure are called maintenance expenses. Depending on the agreement, some cloud providers charge their customers for support services. 

Hidden Charges

Aside from common factors that affect cloud computing costs, you may see some extra fees in your monthly bill. For example, some vendors have exit fees that come into place when a customer terminates the contract. Your location may also become a determinant as vendors offer different rates based on the region and availability zone. Finally, most cloud companies set limitations on data and storage in their pricing options. If you exceed the limit, you will incur additional costs. 

Final Thoughts

Overall, the cost of cloud computing is contingent on a range of factors, both internal and external. Before locking in a vendor and signing an agreement, make sure you understand the implications and expenses associated with it. If you can use some assistance in this complex process, reach out to the NIX team. We are a team of software development professionals, well-versed in data migration and legacy modernization. Our years-long expertise makes us an ideal partner to rely on this rocky and lengthy journey.