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During a recession, purchases drop. Customers using public IaaS cloud computing often only need to commit to services for a small amount of time – typically an hour or a month. That shifts inventory risk, i.e. the chance that products won’t sell or that the price of those products will drop, to the cloud IaaS vendor.
Public IaaS cloud computing is computing sold on a utility based model where customers only pay for the services used. A server that will sit in the closet unplugged has the same initial outlay as the one that is used to power mission critical workloads for profitable business. Cloud is different. A customer does not need to pay for a cloud instance that remains completely idle. For the cloud vendors, this may mean that when business profits go south, customers turn off unused resources. During cyclical downturns, many companies may all feel pinched at the same time. The graph above shows that electricity usage, the canonical example of a utility resource, follows that trend.
During recessions, purchasing cloud resources can have a number of advantages over purchasing physical IT assets. First, recessions aren’t exactly predictable. Purchases made right before – or at the start of – a downturn generally meet the requirements of pre-recession workload trends – this over-provisioning is a form of inventory risk. The purchases of physical assets at the low point of a business cycle may indeed be less, but that low point won’t last very long because GDP downturns are generally a blip. The use of public cloud IaaS, resources on the other hand, would more closely conform to the cyclical events of an economy, thus incurring less spending and risk for customers.
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