We are regularly asked: why does it costs less in the cloud? Does it not use computers but just in another location? There are several factors which make cloud computing a lot cheaper than traditional on-premise computing.
Buying Servers In Bulk
When you buy in bulk, you save. By some estimations, Google is the fifth-largest server manufacturer in the world -- they have not sold a single server. Google manufactures these server identically and cheaply. These unsold servers power Google's data centers which in turn power their users' cloud applications like Google Apps. Below is a video where you can see inside one of their many massive data centers.
Made for the MassesIn the video, you can see a UPS protected server being replaced by a technician in minutes. Think about how long it takes you to replace a server not just a UPS. A few days, weeks? It can take many hours just researching which server to get and how it will be configured. You get the idea -- your one-off, custom built server is expensive, labour intensive and slow to deploy. If you were having a server setup race, Google can have hundreds of servers setup by the time a company can setup just one.
Optimized Operating System With No Licensing FeesAt Google, all the servers run a version of Linux that has no licensing fees and is optimized for their systems and the hardware it runs on. It is automatically installed and updated. Most small and medium-sized businesses run on Windows which is expensive to license and maintain.
Not Just GoogleWhen you include, your hardware costs, licensing costs and, likely the biggest cost, your staff time, Google has on-premise servers beat by a wide margin. Even companies like Amazon and RackSpace who do not have the extreme setup that Google does, are going to be able buy, setup and maintain servers for a fraction of what you can.
Your Next Project
When you are planning your next step in your IT infrastructure, take a serious look at what you really need to deploy on-premise and consider what you might deploy in the cloud -- you will find savings.