Post-Brexit drop in pound sees cloud costs rise by £1,750 a year in UK, 451 Research shows

451 Research shows UK enterprises are on course to pay thousands of pounds more for the same cloud services as last year, in the wake of Brexit

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UK-based public cloud users will pay thousands of pounds more in 2016 than in the previous year for the same quantity of compute resources, as the fallout from the country’s Brexit vote continues to affect the value of sterling.

That is according to 451 Research’s latest quarterly Cloud Price Index report, which sets out the total price of running a web server application, taking into account the cost of the public cloud-based compute, storage, database and management required to run it.

In light of the continued fall in the value of the pound against the US dollar, the cost of running 451 Research’s sample web application will now set users back £1,750 more than before the Brexit vote.

Speaking to Computer Weekly, Owen Rogers, research director at 451 Research’s Digital Economics Unit, said the crux of the issue was that most of the public cloud giants billed UK customers in dollars, which meant any drop in the pound’s value had the potential to hit enterprise IT budgets hard.

“If you are a British user consuming exactly the same large basket of goods, with the same specifications, you are paying about £1,750 more, purely because of currency fluctuations, which is horrendous,” said Rogers. “I think Brexit is going to impact British cloud significantly.”

Firms hoping to offset the price increases by opting for a home-grown provider might be wasting their time, given that most UK cloud firms will need to import their datacentre hardware from overseas.

“There aren’t many providers in the UK that can deliver the type of capabilities someone like Amazon Web Services could offer, but also British cloud providers will need to import hardware, and perhaps even import skills, which is all going to drive up the cost for British users,” he said.

UK cloud firms hoping to win business overseas may also see the cost of doing business in foreign climes rise over time.

“If you are a software company hosting in Britain and looking to target US customers, you are now going to be at a competitive disadvantage to a US company because the cost of the dollar is so weak,” added Rogers.

Public versus private

This time around, the 451 Cloud Price Index compares the running costs between using public cloud and a self-managed private cloud, while taking into account the impact that skill shortages and workload requirements may have on the economics of both approaches.

“People are fascinated by the demarcation between the private and public cloud, so we decided to dive into the private cloud and work out the benchmark for when one is a better option than the other,” said Rogers.

The company’s number-crunching revealed building private clouds on proprietary software stacks from the likes of Microsoft and VMware delivers a lower total cost of ownership when the number of virtual machines managed per engineer remains below 400.

However, when this figure exceeds 400, the open source cloud platform OpenStack becomes a more financially viable option.

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“In fact, beyond this point, all private cloud options are cheaper than both public cloud and managed private cloud options,” the 451 Research report says.

One thing that could tip the total cost of ownership (TCO) balance in OpenStack’s favour in the coming years is the growing availability of engineers with the required skills.

“The standard salaries for OpenStack, VMware and Microsoft engineers have increased by 10%, suggesting the cloud [market] is growing, and people need skills to address it which are not out there at the moment,” said Rogers.

“Now there is an OpenStack certification scheme that will hopefully lead to a flood of engineers into the market, which could change the break-even point between private, public, commercial and open source clouds.”

Hybrid and multi-clouds

Given the wide variety of variables that can affect the economy of using one type of cloud over another at any given time, Rogers said enterprises should shy away from getting too prescriptive with their cloud strategies so they have the flexibility to make course corrections to their plans as needed.

“There is not one model that is going to address every possible concern, because we hear about companies saying they’re public cloud-first, and other companies saying they’re all about private clouds, but really it comes down to how the workload is going to be used,” said Rogers.

“In some cases, it might be better to host it on a private cloud. You might get lower TCO, as well as the benefits of single tenancy and security, but in a different scenario, where things are more unpredictable and it is high maintenance to support, the public cloud might be a better way to go.”

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