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How to decide between private and public cloud models



Guest post by Bert van Rij & Deborah Anthony

Choosing whether compute resources should be sourced from a public or private cloud presents a classic problem hierarchy: Unsolved business problems (like “What markets do we want to cover?”) create problems in the functioning of the enterprise (like “Where do we source the products and services we need to get to the market?”). If problems in the functioning of the enterprise do not get solved, it creates organizational problems (like “IT does everything wrong.”). If organizational problems do not get solved, it creates personal issues (like “I never liked that IT guy anyhow.”). If personal problems do not get solved, it creates workplace issues (like “if IT is in the room I will leave.”).

Many IT product suppliers, as well as cloud service providers, want to make their potential consumers believe that it’s a simple financial decision: “What is the cheapest source for my compute capability?” However, this is only true if there are no issues in the higher levels of the problem hierarchy. If the business knows what it needs, if IT has their organizational structure in place to facilitate the effective use of public cloud brokering, and if IT has the proper financial (OPEX) model in place to make a realistic comparison, then a purely financial decision might work. Unfortunately in real life most organizations don’t fit this scenario.

A more useful model for making decisions about private or public cloud sourcing is the following:

  1. Decide at the business unit level. Identify if you are in a seller’s market or a buyer’s market.

In a seller’s market, providers can set the market price for services. The provider needs costs internally to be stable and predictable to ensure that resources are used effectively to supply the market. Stability of cost is the name of the game. If a business unit is in a seller’s market, using public cloud sourcing is counterproductive due to the dynamic nature of a cloud sourcing strategy.

If a business unit is in a buyer’s market, the market (buyers collectively) set the prices. Thus the provider needs dynamic agile internal cost patterns in order to be able to “flex” with the variation in the revenue income. This is where public cloud sourcing is effective because IT costs can be adjusted as revenue comes in.

  1. Decide at the functional level. If the need for IT resources is dynamic, decide whether the public cloud resources can fit (or can be made fit) the functional needs of the business unit. This includes the security, data protection, and availability needs.
  2. Decide at the organizational level. Once both items 1 and 2 are clear, decide if an internal or external organization should be used, based on the positioning of the IT department. Questions related to responsiveness, scalability, etc. to supply the needed functionality should be listed and compared.
  3. Determine the cost at which the needed functionality can be delivered. Because consuming public cloud resources does not require a CAPEX investment, this calculation should be an OPEX-based calculation only (cost per month). To make a fair comparison, it should include ALL the people, process, and technology costs. Calculating only the technology cost provides a false outcome. When consuming private cloud sources compared with public cloud sources, the consumer’s skills need to be more focused on service engineering and commercial marketing a and less focused on technical administration. The best methodology for calculating the cost model is to use time-driven activity-based costing techniques to make this comparison.

Bear in mind that the steps outlined above will not result in simple yes/no answer, so it is important to see decision-making about private versus public cloud sourcing as an ongoing process requiring expertise and experience. Leading-edge IT departments organize this decision-making capability as an independent internal service broker function. In combination with a hybrid delivery organization, the service broker organization represents the end model of a service-based IT department for the foreseeable future.

Hewlett Packard Enterprise has extensive experience and can help you with all aspects of the design and implementation of a cloud service broker organization and the supporting hybrid delivery organization. HPE will enable you to optimize your responses to the ever-increasing IT needs of your enterprise.

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About the Author


Stuart Crann

Whenever this kind of thing comes up you also have to look at the customer requirements.

Many of our customers insist that data is not stored outside the UK. Some insist that it must conform to certain standards and so on.

In this case, your suppliers are heavily limited as well as expensive.

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