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There are three different cloud deployment models. A cloud deployment model defines where your data is stored and how your customers interact with it – how do they get to it, and where do the applications run? It also depends on how much of your own infrastructure you want or need to manage.

Explore the three deployment methods of cloud computing

Public versus Private versus Hybrid

Public cloud

This is the most common deployment model. In this case, you have no local hardware to manage or keep up-to-date – everything runs on your cloud provider’s hardware. In some cases, you can save additional costs by sharing computing resources with other cloud users.

Businesses can use multiple public cloud providers of varying scale.

Microsoft Azure, GCP is an example of a public cloud provider.

Advantages

• High scalability/agility – you don’t have to buy a new server in order to scale
• Pay-as-you-go pricing – you pay only for what you use, no CapEx costs
• You’re not responsible for maintenance or updates of the hardware
• Minimal technical knowledge to set up and use – you can leverage the skills and expertise of the cloud provider to ensure workloads are secure, safe, and highly available

A common use case scenario is deploying a web application or a blog site on hardware and resources that are owned by a cloud provider. Using a public cloud in this scenario allows cloud users to get their website or blog up quickly, and then focus on maintaining the site without having to worry about purchasing, managing or maintaining the hardware on which it runs.

Disadvantages

Not all scenarios fit the public cloud. Here are some disadvantages to think about:

• There may be specific security requirements that cannot be met by using public cloud
• There may be government policies, industry standards, or legal requirements which public clouds cannot meet
• You don’t own the hardware or services and cannot manage them as you may want to
• Unique business requirements, such as having to maintain a legacy application might be hard to meet

Private cloud

In a private cloud, you create a cloud environment in your own datacenter and provide self-service access to compute resources to users in your organization. This offers a simulation of a public cloud to your users, but you remain completely responsible for the purchase and maintenance of the hardware and software services you provide.

Advantages

This approach has several advantages:

• You can ensure the configuration can support any scenario or legacy application
• You have control (and responsibility) over security
• Private clouds can meet strict security, compliance, or legal requirements

Disadvantages

Some reasons teams move away from the private cloud are:

• You have some initial CapEx costs and must purchase the hardware for startup and maintenance
• Owning the equipment limits the agility – to scale you must buy, install, and setup new hardware
• Private clouds require IT skills and expertise that’s hard to come by

A use case scenario for a private cloud would be when an organization has data that cannot be put in the public cloud, perhaps for legal reasons. An example scenario may be where government policy requires specific data to be kept in-country or privately.

A private cloud can provide cloud functionality to external customers as well, or to specific internal departments such as Accounting or Human Resources.

Hybrid cloud

A hybrid cloud combines public and private clouds, allowing you to run your applications in the most appropriate location. For example, you could host a website in the public cloud and link it to a highly secure database hosted in your private cloud (or on-premises datacenter).

This is helpful when you have some things that cannot be put in the cloud, maybe for legal reasons. For example, you may have some specific pieces of data that cannot be exposed publicly (such as medical data) which needs to be held in your private datacenter. Another example is one or more applications that run on old hardware that can’t be updated. In this case, you can keep the old system running locally, and connect it to the public cloud for authorization or storage.

Advantages

Some advantages of a hybrid cloud are:

• You can keep any systems running and accessible that use out-of-date hardware or an out-of-date operating system
• You have flexibility with what you run locally versus in the cloud
• You can take advantage of economies of scale from public cloud providers for services and resources where it’s cheaper, and then supplement with your own equipment when it’s not
• You can use your own equipment to meet security, compliance, or legacy scenarios where you need to completely control the environment

Disadvantages

Some concerns you’ll need to watch out for are:

• It can be more expensive than selecting one deployment model since it involves some CapEx cost up front
• It can be more complicated to set up and manage

Summary

Cloud computing is flexible and gives you the ability to choose how you want to deploy it. The cloud deployment model you choose depends on your budget, and on your security, scalability, and maintenance needs.

In the past, companies needed to acquire physical premises and infrastructure to start their business. There was a substantial up-front cost in hardware and infrastructure to start or grow a business. Cloud computing provides services to customers without significant upfront costs or equipment setup time.

These two approaches to investment are referred to as:

• Capital Expenditure (CapEx): CapEx is the spending of money on physical infrastructure up front, and then deducting that expense from your tax bill over time. CapEx is an upfront cost, which has a value that reduces over time.
• Operational Expenditure (OpEx): OpEx is spending money on services or products now and being billed for them now. You can deduct this expense from your tax bill in the same year. There’s no upfront cost. You pay for a service or product as you use it.

CapEx computing costs

A typical on-premises datacenter includes costs such as:

Server costs

This area includes all hardware components and the cost of supporting them. When purchasing servers, make sure to design fault tolerance and redundancy, such as server clustering, redundant power supplies, and uninterruptible power supplies. When a server needs to be replaced or added to a data center, you need to pay for the computer. This can affect your immediate cash flow because you must pay for the server up front.

Storage costs

This area includes all storage hardware components and the cost of supporting it. Based on the application and level of fault tolerance, centralized storage can be expensive. For larger organizations, you can create tiers of storage where more expensive fault‐tolerant storage is used for critical applications and lower expense storage is used for lower priority data.

Network costs

Networking costs include all on-premises hardware components, including cabling, switches, access points, and routers. This also includes wide area network (WAN) and Internet connections.

Backup and archive costs

This is the cost to back up, copy, or archive data. Options might include setting up a backup to or from the cloud. There’s an upfront cost for the hardware and additional costs for backup maintenance and consumables like tapes.

Organization continuity and disaster recovery costs

Along with server fault tolerance and redundancy, you need to plan for how to recover from a disaster and continue operating. Your plan should consist of creating a data recovery site. It could also include backup generators. Most of these are upfront costs, especially if you build a data recovery site, but there’s an additional ongoing cost for the infrastructure and its maintenance.

Datacenter infrastructure costs

These are costs for electricity, floor space, cooling, and building maintenance.

Technical personnel

While not a capital expenditure, the personnel required to work on your infrastructure are specific to on-premises datacenters. You will need the technical expertise and workforce to install, deploy, and manage the systems in the datacenter and at the data recovery site.

OpEx cloud computing costs

With cloud computing, many of the costs associated with an on-premises datacenter are shifted to the service provider. Instead of thinking about physical hardware and datacenter costs, cloud computing has a different set of costs. For accounting purposes, all these costs are operational expenses:

Leasing software and customized features

Using a pay-per-use model requires actively managing your subscriptions to ensure users do not misuse the services, and that provisioned accounts are being utilized and not wasted. As soon as the provider provisions resources, billing starts. It is your responsibility to de-provision the resources when they aren’t in use so that you can minimize costs.

Scaling charges based on usage/demand instead of fixed hardware or capacity.

Cloud computing can bill in various ways, such as the number of users or CPU usage time. However, billing categories can also include allocated RAM, I/O operations per second (IOPS), and storage space. Plan for backup traffic and data recovery traffic to determine the bandwidth needed.

Billing at the user or organization level.

The subscription (pay-per-use) model is a computing billing method that is designed for both organizations and users. The organization or user is billed for the services used, typically on a recurring basis. You can scale, customize, and provision computing resources, including software, storage, and development platforms. For example, when using a dedicated cloud service, you could pay based on server hardware and usage.

Benefits of CapEx

With capital expenditures, you plan your expenses at the start of a project or budget period. Your costs are fixed, meaning you know exactly how much is being spent. This is appealing when you need to predict the expenses before a project starts due to a limited budget.

Benefits of OpEx

Demand and growth can be unpredictable and can outpace expectation, which is a challenge for the CapEx model as shown in the following graph.

With the OpEx model, companies wanting to try a new product or service don’t need to invest in equipment. Instead, they pay as much or as little for the infrastructure as required.

OpEx is particularly appealing if the demand fluctuates or is unknown. Cloud services are often said to be agile. Cloud agility is the ability to rapidly change an IT infrastructure to adapt to the evolving needs of the business. For example, if your service peaks one month, you can scale to demand and pay a larger bill for the month. If the following month the demand drops, you can reduce the used resources and be charged less. This agility lets you manage your costs dynamically, optimizing spending as requirements change.

 

Economies of scale is the ability to do things more efficiently or at a lower-cost per unit when operating at a larger scale. This cost advantage is an important benefit in cloud computing.

Cloud providers such as Microsoft, Google, and Amazon are large businesses leveraging the benefits of economies of scale. These providers can then pass the savings on to their customers.

These savings are apparent to end users in a number of ways, one of which is the ability to acquire hardware at a lower cost. Cloud providers can also make deals with local governments and utilities to get tax savings, lowering the price of power, cooling, and high-speed network connectivity between sites. Cloud providers are then able to pass on these benefits to end users in the form of lower prices than what you could achieve on your own.