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Is Public Cloud Cheaper Than Running Your Own Data Center?

by Marco Meinardi  |  November 30, 2018  |  8 Comments

The question on whether public cloud infrastructure is cheaper than running on-premises data centers keeps coming in client inquiries. Clients realize that most of the answers produced by the industry so far are skewed by the vested interests of whoever is coming up with those answer. Public cloud providers make their offerings look significantly more cost-effective than on-premises data centers. Hardware vendors promote the opposite view. Furthermore, within organizations themselves, internal politics continues to inevitably influence the results of any attempt to produce defensible calculations.

That’s why we decided to take a shot at answering this. I’m proud to announce that my research note “How to Develop a Business Case for the Adoption of Public Cloud IaaS” (paywall) is now available on gartner.com. The research provides guidance on how organizations should go about calculating TCOs and ROIs for their cloud adoption and migration projects. Gartner clients often struggle to quantify the cost savings that the cloud model can lead to as well as the potential for new revenue opportunities. As a results, clients often end up calculating cloud costs with the same buying patterns as they were using in their data centers, missing out on the optimization opportunities that public cloud infrastructure can offer. At the same time, clients struggle to quantify the necessary investments to skill up and operationalize cloud to take full advantage of the technology.

The research states that “cloud services can initially be more expensive than running on-premises data centers. [However, it also proves that] cloud services can become cost-effective over time if organizations learn to use and operate them more efficiently.” The statement is backed by an example of workload migration for 2,500 virtual machines from an on-premises data center to Amazon Web Services EC2. The example TCO (shown in Figure 1) shows an initial uptake in cloud costs and a steady decline as soon as organizations learn how to apply cost optimization best practices (as described in this other framework). The chart also shows how on-premises costs may have a long tail as organizations take time to actually shut down their data centers.

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Figure 1. Example TCO of Migration to Cloud IaaS Over Three Years

While the savings on infrastructure costs over time may look appealing, organizations should bear in mind that the overall ROI may be still negative in the short term due to the hefty investments in transformation and the long tail of on-premises data center costs. Furthermore, the example in Figure 1 is based on a number of assumptions (available in the research for consultation) that will not be representative of all situations. As a consequence, organizations that want to conduct a similar exercise should be prepared to tailor the assumptions, being aware of their impact on the final business case result.

To know more about this topic or if you would like to discuss further, you can read the research note at”How to Develop a Business Case for the Adoption of Public Cloud IaaS” (paywall) or reach out to your Gartner representative to schedule an inquiry call with me. Looking forward to hearing your comments!

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Tags: costs  iaas  publiccloud  

Marco Meinardi
Research Director
1 years at Gartner
18 years IT Industry

Marco Meinardi is a Research Director within Gartner for Technical Professionals (GTP). Mr. Meinardi focuses on public cloud, cloud management, cloud adoption strategy and IaaS provider comparison and selection. Read Full Bio


Thoughts on Is Public Cloud Cheaper Than Running Your Own Data Center?


  1. Hi Marco, I like your blog, I am keen to understand your take, how mature do you think PaaS and DBaaS are today?

  2. nip says:

    Sorry, I do not buy the chart. Every company that I know of that started using the cloud, it’s monthly bill goes through the roof. And it is so difficult to predict next month’s bill. Not to mention that now, ANY developer that makes a small dev error, can cost a company unbelievable amounts.
    And we didn’t consider that the move is single sided. Don’t even think about going back. It’s impossible.
    I would bet that most board of directors follow the hype. “We must move to the cloud, everybody moves to the cloud, did you move to the cloud already?”

    • Marco Meinardi says:

      Uncontrolled growth in cloud bills is indeed a problem for many organizations starting with public cloud adoption. However, that’s due to lack of financial management processes. Spend can (and should) be managed and developers’ errors can be prevented and/or mitigated. Repatriation as a way to address the inability of managing cloud spend is not something we’d even recommend considering.

    • Matt says:

      I have been saying that from the beginning of so called cloud fashion. Honestly, moving to cloud is almost giving away your business to a different company and with a hefty top up money. Yes, the exit strategy of cloud systems is just bunch of data dumps. It will again require data modeling, formatting to bring it back to on premises and can cost from millions to 100s of millions of dollars.

  3. Mark Maynard says:

    Marco, this was an informative and well written article, thanks for sharing.

    To me it reads that…. Most organization’s applications are built on redundant pools of virtual or physical servers that are both sized for peak load and that are run fully and continually. That said, moving these applications to the Public Cloud and operating them as is would naturally lead to increased infrastructure costs.

    However, given the “pay as you go” nature of the Public Cloud, if organizations refactored their applications to use a platform that enabled them to automatically increase and decrease running application capacity in realtime response to increasing or decreasing user demand, it is highly likely organizations would be able to operate their applications in the Public Cloud at a cost lower than on-premises. An example of such a platform would be Docker containers and Kubernetes container orchestration.

    Is that a fair summary? Thanks!

    • Marco Meinardi says:

      Yes, fair summary. With some caveats… in fact, scheduling instances and rightsizing don’t require any application refactoring. Enabling auto-scaling based on user demand, as you describe, would certainly help achieve further cost benefits. Using containers and Kubernetes could help implement auto-scaling policies, but it would not be a requirement. You can achieve auto.scaling using just cloud provider’s native services and capabilities and potentially no containers (although when using compute instances, you’d have to plan for much slower start time).

  4. Tully says:

    I enjoyed the article Marco. Would you mind sharing some detail on what was factored into the onpremise cost?

    Thank you.



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