Billing for Cloud Services: Five Cloud Model Considerations

Types of Cloud Billing ModelsMore and more companies are adopting a cloud-based infrastructure, and one of the major reasons for this mass migration is the desire to save money. According to a recent TechRepublic survey, nearly 95% of IT professionals believe the cloud will help reduce their setup and maintenance costs, while almost half said they expected their IT costs to drop by 30-50% when using cloud infrastructure and apps. With saving money being such a high priority, it’s important for organizations of all sizes to understand billing for cloud services.

Of course, not every organization is migrating to the cloud in the same way. Today, there are a number of cloud computing options available, and billing may vary wildly based upon the model chosen. Here are the five main cloud models, what they are, and how billing may be impacted.


5 Cloud Models and Billing Costs


1. On-Premise Infrastructure

  • WHAT IT IS: An internal, physical infrastructure dedicated entirely to one organization (this may be on-premise or off-premise, but within a company-owned data warehouse). This is not a “true” cloud because when it becomes necessary to scale up, more equipment needs to be purchased.

  • BILLING CONSIDERATIONS: Because the equipment functions for a sole user, there are no benefits from economies of scale as seen in other models; an organization pays for electricity and cooling through their electric company, and maintenance and licensing out of pocket. Even if these costs seem manageable, the large capital expenditures for equipment purchases that happen from time to time can really break a budget.

2. Public Cloud

  • WHAT IT IS: A large physical and virtual infrastructure shared with thousands, or perhaps millions of users. It’s what most people think of when considering the cloud, as it includes brand-name heavyweights like Amazon Web Services, and Microsoft Azure as prime examples.

  • BILLING CONSIDERATIONS: Large public cloud providers do not always make it easy to understand their policies or billing models. Their pricing models make use of unique terminology, for example, AWS offers "on-demand instances,” which Azure refers to as “pay as you go.” Trying to determine which public cloud provider offers the best value is also a bit of a moving target, as both AWS and Azure revise their pricing structure frequently to compete with one another. With pricing always in flux, it can be difficult to determine usage and cost over time. Consider that AWS has made 62 changes to their pricing structure in the 12 years they’ve been in existence. With such frequent pricing changes, creating a budget becomes difficult, if not impossible.

3. Virtual Private Cloud (VPC)

  • WHAT IT IS: While a VPC is just as virtual as the public cloud, sharing resources and space within a public infrastructure, it operates with a certain level of isolation between clients. This makes it ideal for those wanting to take advantage of the cloud, gaining transparency, without compromising privacy.

  • BILLING CONSIDERATIONS: Because VPCs are within a public cloud, clients still benefit from economies of scale, sharing costs with other organizations. And because they’re working within their own space, more transparency into costs is provided, offering the ability to increase or reduce capacity as needed.

4. Hybrid Cloud

  • WHAT IT IS: A strategy in which an organization separates workloads between on-premise servers, and a public cloud or VPC. Together, these infrastructures act as one single “hybrid cloud.”

  • BILLING CONSIDERATIONS: While completely committing to a public cloud or VPC is likely to be the most economical, a hybrid cloud is still almost guaranteed to be less expensive than maintaining an entirely on-premise infrastructure due to economies of scale. In a hybrid cloud, the portion of a workload running in a public cloud or VPC benefits from group usage, as the cost of electricity, HVAC, maintenance, software updates, backups, and more are shared with thousands or millions of other clients. In addition, many large organizations already possess a number of on-premise servers, and don’t want to throw them away in one fell swoop, destroying their balance sheet in the process. Using a hybrid cloud, they can continue to utilize past investments, while slowly moving workloads into the cloud.

5. Multi-Cloud

  • WHAT IT IS: The strategy of utilizing multiple cloud providers for different workloads depending on needs and sensitivity of the data. In an ideal situation, each cloud works together to deliver a seamless experience for clients

  • BILLING CONSIDERATIONS: Every cloud platform has its own set of billing systems and pricing structures. So, a multi-cloud makes cost control and planning a full-time job for IT staff and the accounting team. In addition, many providers charge when traffic moves in and out of their platform, and with multiple clouds, it’s common for data to cross provider lines frequently; these network traffic costs can add up fast.

Choosing Your Cloud—And Your Billing Model

There are a lot of considerations that organizations need to make when migrating to the cloud—which cloud strategy they take is just the beginning. Capacity, the need for transparency, and service level agreements (SLAs) all need to be considered. Only then can a determination be made of which cloud billing model may work best, whether it’s Consumption-Based Billing, Allocated/Reserved Billing, or Level/Dedicated Billing. Often, it comes down to the type and size of an organization.

With an understanding of different cloud models, now it’s time to understand the various cloud-billing models. Wondering which may be right for your organization? Download DSM’s latest eBook, Cloud Billing Models: Which is Right for Your Organization?, and if you have additional questions, don’t hesitate to contact the experts at DSM. We can review your unique situation and help you decide which billing model is right for your business—even if it’s not with us.

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