Economics of the Cloud

Posted on December 5, 2011 By

Cloud Computing brings a different economic paradigm to the world of software development. In the past, when a company needed to grow its IT infrastructure it had to make a capital investment in infrastructure. A capital investment refers to the money a business uses to purchase fixed assets, such as servers, routers, and cooling systems. This capital investment would require large upfront cash expenditures, which is not typically a deductable transaction. Instead, the capital investment results in a capitalized asset that must be depreciated over an extended period.

Cloud Computing brings a different economic paradigm to the information technology industry. Typically, there is little or no upfront capital investment in a Cloud Computing IT infrastructure. Instead, the required usage is purchased which results in an expense that frequently provides a tax deduction.

In addition to the benefits to large corporate data centers, the economic model of a Cloud Computing infrastructure will bring benefits to small companies. No longer will a small startup incur large up-front costs in order to compete in the hi-tech game. This fact lowers the barriers-of-entry, which allows more competitors to enter the marketplace. With more competitors comes a decrease in cost and improvements in technology. With more players in the game, there is an increased potential to achieve important innovations.

 

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