Public vs. Private Cloud: How to Evaluate Total Cost of Ownership

By: Daniel Newman

Cloud platforms offer many benefits, but choosing between private and public clouds isn’t always simple. Often, businesses assume that a public cloud costs less or that you have to pay more for higher security in a private cloud, which may not be the case.

To determine the cloud option that’s right for you, you must first understand the total cost of ownership (TCO) for your business. With each option, you’ll have a different TCO depending on your needs and what’s included with your cloud package. Let’s first discuss the two options: public and private.

Public vs. Private Cloud

Both these options bring different technology to the table, with varying price points. To choose the best one for your business, we need to compare what they offer.

Public Cloud

The public cloud offers many different options with a multitenant environment and a pay-as-you-grow scalability. This means that as your business grows, your technology can grow right along with it. The public cloud also offers:

  • Scalability: The public cloud is great for nonsensitive business operations with unpredictable traffic. It is vast and can help you automate business processes while remaining open to your employees for nonsensitive business work.
  • Low Cost: Public clouds offer reduced storage and are managed by third parties, keeping the cost for IT lower than other options.
  • Flexibility: Do you need more storage? Less storage? Is your business growing rapidly? With the public cloud, you can customize your experience and only pay for what you use.

Private Cloud

The private cloud shares some similarities with the public cloud. However, this option has a single tenant with enhanced security measures for the scalability you need. It provides:

  • Security: It’s no secret that the private cloud is secure. It offers the best choice for sensitive and critical operations within your business that need to be tightly controlled.
  • Customization: The private cloud is completely customizable to fit your business’ specific needs. You can add new features or applications that are completely unique to your organization.
  • Enhanced Control: With the private cloud, you have control over what you view, use and share with others. If it’s part of your business, you control it.
  • Predictable Costs: Because the private cloud is built for you, you’ll know upfront what the cost will be each month. You’ll be able to scale and budget according to the plan set forth in your cloud package.

Breakdown Your Costs

While on paper it’s easy to pick an option for your business, you need to calculate your TCO before making a final decision. Here are six key steps to understanding the true costs of the cloud platform you’re considering.

1. Identify Your Usage Cycle

How often will you access your cloud? This will determine which option is best for you in terms of cost, storage and space. If you only use your cloud sporadically, a public option that is pay-as-you-use could be best. If you use it daily for secure business processes, you could benefit from a private cloud. Think in terms of your whole business life cycle to get a better sense of TCO.

2. Determine Hosting Models

How will you reduce your current hosting model costs to the new cloud option? Your current TCO will differ when using the cloud. You must accurately calculate these reductions to see what your TCO will look like once the cloud is implemented. Your IT department should determine the hosting models that are currently in use first, then calculate the reduction using the new model.

3. Identify Variable Costs

Costs associated with a public cloud are variable due to its pay-as-you-use policy. In comparison, data costs remain fixed with a private cloud. However, your bandwidth may vary depending on your use. Your IT department should identify variable costs to help calculate the total TCO after these variables.

4. Calculate Cost of Internal Management

Even with a public cloud, your internal management will not be reduced to zero. You will still need to have an IT department to oversee the proper use of the cloud option you choose. Calculate the total cost of your internal management structure and add it to your TCO.

5. Manage Transition Costs

Your transition costs include anything associated with the complete transition from your old model to the new cloud model. This could include training, troubleshooting and consulting. Although these shifts can be difficult to calculate, the public and private models both come with unique transition requirements.

6. Determine IT Life Cycle Costs

You IT department is an asset to your business. To effectively determine your true TCO, you need to consider your IT life cycle and the costs associated with it. With the new cloud option, your IT department and life cycle will change, perhaps for the better. Calculate these changes to see them reflected in reductions, savings and the whole TCO.

Both the public and private clouds offer amazing benefits for you and your business. In order to choose which one is best for your business, you must calculate the TCO of both options and compare it with your current system. Which one will give you the biggest return on investment? The answer may surprise you.

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About The Author

Daniel Newman

Founder and President, Broadsuite, Inc.

After 12 years of running technology companies including a CEO appointment at the age of 28, I traded the corner office for a chance to drive the discussion on how the digital economy is going to forever change the way business is done. I'm an MBA, adjunct business professor and 4x author of best-selling business... Read More