Cloud computing sometimes defies economic analysis. The public cloud, in particular, is associated with abundance rather than scarcity, one of the key concepts of economics. But while the cloud creates efficiencies, it does not eliminate constraints or the need to choose between competing goods. One important task for IT teams today is to understand those options more clearly.

There are several economic angles to cloud computing. In this first of three articles, I address cost and financial implications. The next two articles address cloud economics from the angle of applications and behavior.

Why IT? Why economics?

First, a preliminary question: Why do members of IT teams need to become more familiar with an economic framework of any kind? Isn’t it enough to master the technical complexities of the cloud and its various deployment scenarios? One answer lies in organizational trends.

In a traditional organization, the leader of IT reported up, typically, to the CFO. But today’s CIO has a place at the executive table. In a similar way, as organizations have become flatter and more tightly integrated, IT personnel of all titles are now closer to management and counterparts in other departments. The alliance between software development and operations is a case in point. To be effective, devops team members should be conversant in more than just coding. Awareness of product development cycles, customer feedback, costs and other business factors also helps.

that an enterprise is better to go with single-tenant dedicated cloud with anything above about 200 VMs. Based on our more recent analysis at NTT Communications in the Americas, I believe that private cloud is cheaper at 100 or more VMs. Others are also looking for the inflection point. At the OpenStack Summit last May, showed that, in the case of a global health and life sciences enterprise, private cloud became the better option above a monthly spend of $17,000. How many VMs that buys depends on how you configure them, but if you assign a cost of between $100 and $200 per VM, that analysis roughly aligns with our own ($17,000 ÷ $150 = 113).

In addition to containing costs, by bringing these pools of resources into a private environment, IT teams can enable the quick delivery of compute resources while also applying more consistent policies and procedures to boost security, mitigate risk, and ensure regulatory compliance. Compared to scenarios where public cloud resources are overused, and IT and business are in uneasy tension, that sounds like a more ideal operational environment.

This article is published as part of the IDG Contributor Network.