Cloud computing, Starbucks, taxis, and the truth about pay-as-you-go pricing

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Michael Pietroforte

Michael Pietroforte is the founder and editor in chief of 4sysops. He has more than 35 years of experience in IT management and system administration.

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The videos were created by GoGrid, a cloud provider. Therefore, you can't expect that they'll tell you about the many disadvantages of cloud computing; for example, that cloud computing shares many of the downsides of mainframe computing and about security concerns, or that you might have to hire cloud specialists in your own organization.

What I like most in the second video is the analogy to taxis. Why buy a car if you can take a cab to a meeting that is just a couple of blocks away? You just pay for the time you use the taxi and you don't have to worry about its maintenance. They forgot to mention that taxis also "scale" very well. If the whole department has to join the meeting, then you can just order the appropriate number of taxis.

This sounds very reasonable. It appears that pay-as-you go is the cheaper alternative. If so, then I wonder why there are still so many privately owned cars on the streets? Don't their owners know that they also pay for the car when it is parked in the garage? Well, I think they know. The main problem with taxis is that they can get very expensive if you use them frequently. It is not only the taxi driver who earns. Renting a car will also cost you more than buying one if you don't just need it for a week or two.

Pay-as-you-go products are always expensive if you use them often. Pre-paid cell phone contracts cost more than flat rates, renting a hotel room costs more than living in your own apartment, and getting your coffee at Starbucks costs you more than brewing it in your own coffee machine.

The same applies to many cloud providers nowadays. If you use their service extensively, you will pay more than for on-premise servers. Cloud computing will become cheaper as soon as there is more competition. However, I am skeptical that it will ever be cheaper than on-premise computing. After all, there is a lot of competition among taxi companies and people still buy cars.

There are many reasons for this. One reason certainly is that a taxi doesn't make money all day. Sometimes a taxi driver has to wait for hours for the next customer. And who has to pay for this waiting time? Of course, you pay it with your taxi bill! It is no different with cloud computing. Even if a cloud provider manages to sell all of its computation power, then there is the risk that there will not be enough capacity available during "rush hours".

Of course, this doesn't mean that pay-as-you-go services don't have their right to exist. I have my own coffee machine yet I go to Starbucks. The point is – I am quite aware of the fact that I pay more at Starbucks. But that is okay with me. (I think carrying a coffee machine under my arm all day wouldn't look good on me.)

What I want to say is that it is not the price that makes cloud computing attractive, it is its flexibility. For example, it is just cool if you can set up a new server quickly without much hassle if you have a temporary bottleneck in your own data center. It is okay if you have to pay a little more for this additional computing power. It is no different with coffee. If I have a temporary "caffeine bottleneck" in my blood stream, I just stop at the next coffee shop.

I think that cloud providers will make a mistake if they advertise their services with the cost savings argument. It is very difficult to calculate what cloud computing will cost in the long run. Sooner or later, their customers will find out the truth. Then the cloud bubble is in danger of bursting, just like the Internet bubble did a few years ago. In these times, we all know how dangerous it is when bubbles burst.