Cloud Computing
Total Cost of Ownership
Definition
Total Cost of Ownership (TCO) is a financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or system. For cloud, it includes not only the direct subscription costs but also the indirect costs of migration, training, and management.
Why It Matters
TCO provides a more complete picture of the financial impact of moving to the cloud. Comparing the TCO of running an application in the cloud versus on-premises can help justify the migration.
Contextual Example
When calculating the TCO of an on-premises data center, you must include not just the server hardware costs, but also the costs of real estate, power, cooling, and IT staff salaries. The cloud often reduces or eliminates these indirect costs.
Common Misunderstandings
- Cloud providers often provide TCO calculators to help potential customers estimate the savings they could achieve.
- TCO analysis is a key part of building a business case for cloud adoption.