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If any company wished to run software or hold data for many decades, it was necessary to purchase physical servers, allocate specific server rooms for them, and also have an IT department to handle everything.
However, today such practices have almost ceased to be relevant because corporations rent their technological infrastructure from such big companies as AWS, Microsoft Azure, GCP, and so forth.
Then what makes them create extremely profitable empires out of gigantic warehouses full of technological equipment? The answer is contained in the business model of cloud computing.
To figure out how these platforms generate revenue, one can examine cloud economics through the prism of the client. The traditional approach in corporate IT presupposes using Capital Expenditure (CAPEX) for purchasing expensive equipment. In cloud computing, it is the opposite because it switches companies to Operational Expenditure (OPEX).
Cloud computing providers use the same billing process as an electricity firm charges its customers. The companies are billed according to the compute, storage, and network data that they have consumed on an hourly basis.
Given the fact that costs go up and down in a dynamic manner, firms think they are making huge savings. The reality behind the concept is that the costs can spiral out of control since the infrastructure is not monitored.
Leading hyperscalers don’t limit themselves to merely renting digital storage spaces but monetize all the layers of the internet.
Businesses have to pay a premium hourly cost for their virtual machines. If those VMs remain idle, there will be a cost involved until they are actually turned off.
Although it may be free for businesses to upload their data to the cloud platform, any attempt to egress this data from the cloud comes with a premium fee. This is one of the ways through which the cloud platform locks in its users.
Proprietary database engine, Artificial Intelligence, and the security layers on top of the hardware provide very high margins.
In conclusion, one can say that the public cloud has revolutionized corporate finances to such an extent that physical machines have become a flexible monthly service.
While giving businesses an opportunity to use the latest technologies without any investments, the cloud computing business model has become an incredibly dependable and multi-billion-dollar monthly income stream for leaders like AWS, Azure, and GCP.
