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Adjusting to Cloud Computing: New Cost Structures

 
Cost Structures of Cloud Computing

One of the challenges associated with a move to cloud computing is the need for the accounting department and managers to get used to new ways of doing business when it comes to the cost structures associated with this radical new technology.  In the traditional paradigm, every computer running a particular piece of software would need an individual license for it.  When many licenses for the same product are needed, companies could sometimes take advantage of a site license, which provided a sort of bulk pricing that could result in significant discounts. 

This pricing model still predominates for many types of software, but when companies begin to adopt novel IT solutions such as cloud computing, the traditional rules no longer seem to apply.  In a cloud computing paradigm, individual workstations may become effectively like terminals.  Instead of having software installed on a per-CPU basis, each workstation instead connects to a centrally controlled software source, often going online to reach the central server.  The software then needs to be installed only on this central server, yet dozens or even hundreds of employees may be accessing it.  What then becomes of traditional licensing and pricing models?

There are actually many arrangements for pricing in a cloud environment.  One resembles the "per-user" charges that licenses tended to represent.  In this model, a cloud provider charges according to the total number of user accounts desired for a particular piece of cloud software.  A related model is to assess a charge for the desired number of simultaneous connections; this can result in cost savings when workflow can be strategically staggered.  Still another model is for an IT company to offer ‘block’ pricing, with every 10 additional workers forming a new user block that must be funded.

"Chargeback" is a more challenging model for accounting departments to learn to deal with, though it may result in overall cost savings.  In a chargeback model, the business is billed based on the amount of resources employees actually consume as they use the cloud interface.  Such resources may include CPU cycles and storage space, among other considerations.  A chargeback model can be shocking to some users at first glance because they may not realize beforehand how high their resource consumption is.  On the other hand, it can be a teaching tool, helping workers and managers to identify more efficient ways of using cloud resources, a technique that over time can help to minimize costs. 

Cloud computing is often part of an overall IT outsourcing strategy that helps businesses to streamline their operations. 


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