Financial benefits

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The financial benefits of cloud computing are most clear cut for public clouds, where computing resources are acquired
as a utility service on demand from external providers, as described in Chapter 1. This business model means that IT can be purchased on a pay-per-use basis and treated as operational expenditure, with the reduced administration burden that comes with not having any server hardware to look after.

Pay-per-use IT

The elastic and scalable nature of cloud computing supports the unpredictable cycles of expansion and contraction that
businesses go through. Public cloud customers share the cost of a multi-tenanted computing infrastructure with other customers, making their own consumption-based costs and subscription-based costs affordable and variable. Cost models vary between the three main service models: Software as a Service (SaaS), Infrastructure as a Service (IaaS) and Platform as a Service (PaaS), but the principle is the same. Your SaaS costs depend on your user numbers; your PaaS costs increase in proportion to the usage and size of the applications you develop; and your IaaS costs cover your use of servers and storage Long-term cost savings are less likely for large enterprises as they have their own economies of scale, but many small to medium-sized businesses can benefit financially from cloud computing even in the long term.

Operational expenditure

When your business buys computing hardware it is capital expenditure, which increases your tax burden in the short
term. Cloud computing purchases, however, are considered operational expenditure, because you are renting resources
and accumulate no assets, so the costs can be subtracted directly from profits – an important consideration for many businesses. Moreover, building your own IT infrastructure involves significant up-front costs on hardware and software,
driven by long-term planning based on forecasts of business growth and market trends, whereas a cloud computing system grows with you and, if necessary, shrinks with you. With cloud computing, hardware assets and software licences
are not left unused when you downsize your business.

Reduced IT management costs

If you manage your own IT infrastructure or deploy business software applications to your employees’ desktops there is an administration overhead, and this is a significant factor in the total cost of ownership. Assets have to be bought and managed, users supported and technical people employed to administrate systems and hardware. Cloud computing can reduce this overhead by offloading the problems of procuring, installing, managing and maintaining hardware (through Infrastructure as a Service); server operating systems (through Platform as a Service); and application deployment (through Software as a Service).

These overhead costs are less of an issue for organizations with large IT departments, but small to medium-sized businesses with fewer resources can certainly benefit.