The public cloud is emerging as a disruptive innovation for IT -- and not just for small and medium-size businesses. At this point, most large enterprises are experimenting with the public cloud as a development-and-test resource, or for production applications with low security, privacy and service level requirements. The conventional wisdom is that the public cloud may even be just a niche interest for large companies, given their extensive legacy investments and the mission-critical nature of their systems. Nevertheless, a number of these companies do see big potential in the public cloud; they feel an acute need to choose between proactively working with the public cloud or getting left behind.
At the Corporate Executive Board, we have spoken with many of the early enterprise adopters of public cloud services from vendors such as Amazon and Rackspace. Naturally, the applications that these enterprises have considered for the public cloud are studied for their cost-effectiveness in this model. Below is our consolidated feedback from these early adopters on the 10 hidden costs in the public cloud. We've broken these cost areas into four broad categories to watch:
- One-Time Migration Costs
- Billing Model Limitations
- Retained Management Costs
- Risk Premium
One-Time Migration Costs
These are costs associated with the migration of existing applications from traditional, physical infrastructure to public cloud, including applications retrofitting time, server migration time, and potential impact on depreciation write-offs.
In this category, there are two potential costs to watch:
- Application retrofitting. The majority of a typical company's in-house application portfolio is not yet cloud-ready. Some of applications already suitable for virtual machines, or developed according to platform standards, can be ported easily. But most applications would require considerable retrofitting or recoding to become compatible. This is particularly true of legacy applications. Organizations need to evaluate the cost effectiveness of porting these applications, versus leaving them as-is or even totally decommissioning them in favor or new applications. Promoting platform standards, and building the business case for a technology refresh, have been perennial challenges for application teams. This remains true when considering the public cloud.
- Depreciation write-offs. Companies that choose to accelerate application or infrastructure refresh in order to jump-start public cloud migration face the possibility of no longer writing-off depreciation on existing hardware. That explains why many companies are thinking of evaluating the cloud at existing refresh points.
Billing Model Limitations
There are three features of the current public cloud billing model that may be a poor fit for your enterprise applications.