Breaking down the cost of cloud computing in 2025

How do providers determine cloud costs?

Everything used in public cloud is metered. Cloud service providers (CSPs) take into consideration several factors when determining how much to charge customers, including the following:

• Networking costs. The vendor decides how much it must spend to maintain the network. Consequently, the provider estimates the costs for the hardware, network setup, labor and maintenance.
• Storage costs. The vendor calculates the cost to operate a company's storage hardware or the cost to buy new hardware to meet the storage needs of the enterprise.
• Computing costs. The provider calculates the costs for CPUs, including VMs, and businesses have their requirements for using CPUs. The provider calculates the costs of buying hardware for every gigabyte of virtual RAM that a company uses.
• Data transfer. Uploading data to the cloud is usually done for free, but downloading or exiting the cloud is subject to transfer fees. There are also fees for transfers between regions or zones of coverage.
• Database services. These services cover provisioned databases, managed databases, backup and recovery, NoSQL databases, and caching via Redis and Memcached.
• Software licensing. OSes, SaaS, PaaS and third-party applications are covered under software licensing agreements.

• Security services. Among the security services provided are firewalls, identity management and encryption. Some CSPs might offer them as free basic services, but there could be additional charges depending on the level of support and coverage.

Payment structures of major cloud providers

The big three CSPs -- Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform -- offer multiple layers of products and services to support user workloads depending on the user's needs. After extensive research into team collaboration products, we present a sampling of three leading cloud-based services that have a variety of storage and compute options along with examples of their pricing.

AWS

AWS offers businesses a pay-as-you-go (PAYG) pricing option for most of its cloud services. By paying only for the services used, companies avoid long-term contracts or complex licensing without additional costs or termination fees.

Amazon Elastic Block Store (EBS)

Amazon EBS is a block storage service for Amazon Elastic Compute Cloud (EC2). Businesses pay only for what they use until they release the storage.

Amazon EBS snapshots storage pricing

• Standard: $0.05/GB-month.
• Archive: $0.0125/GB-month.

Amazon EBS snapshots restore pricing

• Standard: Free.
• Archive: $0.03 per GB of data retrieved.

Amazon Elastic File System

Amazon EFS is a serverless, elastic storage service for Amazon EC2. With EFS, organizations don't pay a minimum fee or setup charge. Companies only pay for the following:

• Storage they use.
• Read-write access to data that's infrequently accessed (IA) and stored.
• Any provisioned throughput.

The following table shows storage pricing for file systems using Amazon EFS lifecycle management for select regions. There's also a free-tier option available for one year.

Amazon Simple Storage Service

Amazon S3 is an object storage service that stores data as objects within buckets. Users only pay for what they use, and there's no minimum charge. S3's Free Tier includes 5 GB of Amazon S3 standard storage.

Amazon S3 has five cost elements: storage pricing, data transfer and transfer acceleration pricing; data management and analytics pricing; request and data retrieval pricing; replication pricing; and the price to process data with S3 object Lambda. S3 storage classes and pricing vary by region. The pricing reflects the U.S. East (N. Virginia) region, and restrictions apply.

• S3 Standard is for data users that need to access data frequently.
• First 50 TB/month: $0.023 per GB.
• Next 450 TB/month: $0.022 per GB.
• More than 500 TB/month: $0.021 per GB.
• S3 Intelligent -- Tiering provides automatic cost savings for dynamic and unknown data.
• Monitoring and Automation, all storage/month (objects > 128 KB): $0.0025 per 1,000 objects.
• Frequent Access Tier, first 50 TB/month: $0.023 per GB.
• Frequent Access Tier, next 450 TB/month: $0.022 per GB.
• Frequent Access Tier, more than 500 TB/month: $0.021 per GB.
• Infrequent Access Tier, all storage/month: $0.0125 per GB.
• Archive Instant Access Tier, all storage/month: $0.004 per GB.
• S3 Intelligent -- Tiering also includes optional asynchronous Archive Access tiers.
• Archive Access Tier, all storage/month: $0.0036 per GB.
• Deep Archive Access Tier, all storage/month: $0.00099 per GB.
• S3 Standard -- IA is for long-term but infrequently accessed data that users need to retrieve in milliseconds.
• All storage/month: $0.0125 per GB.
• S3 Express One Zone is high-performance storage for the most frequently accessed data.
• All storage/month: $0.16 per GB.
• S3 Glacier Instant Retrieval is for long-term archived data that customers must retrieve instantaneously.
• All storage/month: $0.004 per GB.
• S3 Glacier Flexible Retrieval is for long-term archived data and backups that users must wait from one minute to 12 hours to retrieve.
• All storage/month: $0.0036 per GB.
• S3 Glacier Deep Archive is for long-term data that only needs to be accessed once or twice a year; users also must wait 12 to 48 hours to retrieve data.
• All storage/month: $0.00099 per GB.
• S3 One Zone - IA is used for re-creatable, infrequently accessed data that requires retrieval in milliseconds.
• All storage/month: $0.01 per GB.

Amazon Elastic Compute Cloud

Amazon EC2 is a cloud compute service that allows users to spin up VM instances with the amount of computing resources they need, such as the number and type of CPUs, local storage and memory.

Users can try EC2 for free and receive 750 hours of Windows and Linux t2.micro instances every month for a year.

There are numerous ways to pay for EC2 instances:

• On-demand pricing enables customers to pay for compute capacity by the second -- with a minimum of 60 seconds -- or the hour. There are no long-term commitments.
• Amazon EC2 Capacity Blocks for ML easily reserves GPU instances for a future date to run machine learning (ML) workloads. Pay only for needed compute time.
• Dedicated Hosts, a fully dedicated physical EC2 server, reduces costs by allowing use of existing server-bound software licenses.

AWS Lambda

AWS Lambda is a serverless compute service that enables users to run code without the need to provision or manage servers. Users only pay for what they use.

AWS Lambda pricing is calculated based on the following:

• Architecture. AWS Lambda is available on x86 and Arm processor architectures in GB-seconds per month, and there's a difference between the two.
• Request pricing. AWS Lambda Free Tier includes 1 million requests per month and 400,000 GB-seconds of compute time per month. After that, it's $0.0000002 per request or $0.20 per 1 million requests.
• Duration pricing. Users receive 400,000 GB-seconds per month free, up to 3.2 million seconds of compute time. After that, it's $0.00001667 for every GB-second used.

Microsoft Azure

Azure offers several storage services, each with its own pricing model. Additional charges apply for snapshots, transactions on data and data transfer volume.

Example prices in the following table are for the East U.S. 2 region with locally redundant storage and are subject to change. For details on free services or additional charges for snapshots or data transactions, visit the Azure Blob Storage or Azure Files pricing sites.

Azure Blob Storage

Azure Files

Azure Virtual Machine

Users pay for Azure VMs in four ways: PAYG, Azure savings plan for compute, spot instances and reserved instances.

Microsoft offers various types and sizes of VMs, divided into six categories: general purpose, compute optimized, memory optimized, storage optimized, GPU and high-performance compute.

Following is an example of pricing for compute- and memory-optimized Linux VMs in the East U.S. region.

• Compute optimized
• Provides high CPU-to-memory; works well for network appliances, application servers, batch processes and medium traffic web servers.
• PAYG pricing starts at $61.7580/month.
• Memory optimized
• Provides a high memory-to-core ratio. Great for medium-to-large caches, relational database servers and in-memory analytics.
• PAYG pricing starts at $82.4900/month.

Google Cloud

Pricing for Google Cloud storage services is based on the volume of data stored, how long the data is stored, the number of operations the customer performs on the data, and any network resources the customer uses to move or access the data.

The following data storage rates apply to much of the United States:

In addition, users are charged if they retrieve cold storage data or delete cold storage data early. That's because cold storage classes are for storing long-term, infrequently accessed data.

The following resources are available to users of the Google Cloud Free Tier, but specific limits apply:

Google Compute Engine VMs

In Google Compute Engine, VMs are grouped according to types of workloads, including general purpose, accelerator optimized, compute optimized and memory optimized.

Following are prices for compute- and memory-optimized machine types:

Compute-optimized machine types. Pricing per vCPU and gigabyte of memory for C2 machine types in Iowa (U.S.-Central) is as follows:

Google also offers H3 compute machines. H3 VMs are powered by the 4th generation Intel Xeon Scalable Processors, DDR5 memory and Google's custom Intel Infrastructure Processing Engine. Pricing per vCPU and gigabyte of memory for H3 machine types in Iowa (U.S.-Central) is as follows:

Memory-optimized machine types. The following lists pricing in Iowa (U.S.-Central) per vCPU and gigabyte of memory for M3 machine types, offering 3rd generation Intel Scalable Processors. Currently, M3 machine types are only available in certain regions and zones:

Comparing cloud costs to traditional infrastructure

There are three types of costs to consider when deploying on-premises infrastructure:

• Capital costs. Server hardware, server software licensing, network infrastructure, storage and backup infrastructure.
• Operational costs. Support for server hardware, software and network infrastructure as well as the storage warranty, data center power and facilities, current system administration labor, IT training and IT staff turnover.
• Indirect business costs. Planned and unplanned downtime.

Building out and maintaining infrastructure on-premises means adding staff, which increases costs.

Typically, for every dollar a company spends on capital expenses to upgrade its IT infrastructure, there's an additional $2 to manage, maintain and secure that infrastructure.

To accurately calculate the total cost related to moving to the cloud, a company must conduct a thorough audit of the status of its IT infrastructure, including all direct and indirect costs. Direct costs -- software, hardware, maintenance, staff and the physical facility -- are easier to calculate. Indirect costs like the loss of productivity for reasons ranging from server downtime to addressing customer displeasure or repairing a damaged reputation are more difficult to determine.

The company then calculates the estimated cloud infrastructure costs using various pricing calculators, such as the in-depth monthly cost calculator provided by AWS.

Benefits of moving to the cloud

Migration to the cloud historically has come with many benefits, including fast implementation, scalability, reduced costs, quick data recovery and fewer wasted resources:

• A company can set up its public cloud in just a few hours. The IT team easily brings the process online, deploys it remotely through the vendor's website, and remotely configures and manages the setup over the internet.
• The vendor is responsible for maintaining the hardware, software and networks in the cloud. Businesses don't need to worry about infrastructure upgrades or security, minimizing IT staff and reducing overall costs.
• Cloud-based services enable companies to quickly recover their data in case of an emergency, such as a power outage or natural disaster.

In addition to the administrative benefits, moving to the cloud offers considerable financial incentives, including the following:

• No large upfront capital costs because a company moving to the cloud doesn't have to purchase physical servers, network storage, cooling systems and disaster recovery systems.
• Reduced software costs because upgrades are included in the monthly fees.
• Lower IT support costs.
• Business continuity, which is included in the cloud environment.
• Overall savings realized through greater efficiency.

Cloud pitfalls and hidden expenses

Public cloud providers often offer free or low-cost signups. Sometimes, cloud vendors even help their customers move their data to the cloud for free.

Money might not be a factor, but time spent is. It can take weeks or even months to transfer petabytes of data to the cloud. During that time, a company could be unable to access its critical data.

Transferring data from one cloud vendor to another can be troublesome and expensive, which is why most businesses stay with one provider. Vendor lock-in results because of the difficulty in canceling existing provider relationships.

In addition, many public cloud vendors charge a nominal fee every time a customer accesses its data. Businesses sometimes fail to account for these small fees when they consider the ROI of cloud computing.

Furthermore, data use increases translate into business cost increases for companies running thousands of analytics jobs. As such, using the public cloud for everything is a poor long-term strategy.

Still, successful businesses recognize the following aspects in making cloud computing decisions:

• Businesses must plan for extra data requirements and consider future database capacity.
• Companies must be aware of the time required to migrate on-premises software and data to the cloud and perhaps adjust their licensing models.
• Businesses might have to increase staff to monitor and manage their interfaces to the cloud vendors.
• Costs for taking on-premises equipment offline include redeploying employees, writing off assets and cleaning up data.
• Cloud providers offer discounts to companies that book capacity in advance for agreeing to a fixed term.

Determining what's best for business

Businesses considering a move to the cloud must do a needs assessment to plan the migration and gain buy-in from stakeholders. After evaluating its current IT infrastructure, the IT team engages in a structured discovery process with stakeholders through meeting and to ensure everyone identifies their business needs when the IT team selects the proper cloud services and cloud providers. The IT team reviews the proposed cloud services to pinpoint where business requirements match.

After determining the appropriate cloud service and service provider, the IT team presents this information to the business leaders, detailing the proposed options and the reasons for selecting those options. These stakeholders can then decide whether to keep the operation on-premises, move it to the cloud or embrace a hybrid cloud approach, which uses a mix of on-premises and cloud services.

Andy Patrizio is a technology journalist with more than 30 years' experience covering Silicon Valley who has worked for a variety of publications -- on staff or as a freelancer -- including Network World, InfoWorld, Business Insider, Ars Technica and InformationWeek.