The ever-evolving world of IT has now a number of cost-effective yet powerful infrastructure types that can fit the needs and budgets of modern enterprises.
In this post, we delve into two distinctive IT infrastructure cost models: on-demand and upfront. An in-depth comparison between the two will be made in the hopes of helping you decide which works best for your business needs.
What are On-demand costs?
As the name suggests it, on-demand, or “pay-as-you-go” cost model is being applied when a business uses certain vendor services and resources only at the time of the need. These can include anything from cloud storage to cloud servers.
In this day and age, video streaming calls over the Internet and task scheduling all come under on-demand costs. These services are owned mainly by the cloud vendor but consumed by the end-user.
How do they work?
Per rule of thumb, on-demand payment model works on the basis that whenever a service is needed, it is paid for and immediately ready to be used.
Where can you find them?
On-demand service models are available in several places. Google Cloud, Microsoft Azure, and Amazon Web Services are at the very top. These three giants provide excellent resources through the Cloud and hence are widely used. Much more on them can be found in one of our previous posts.
There are other On-demand vendors as well, which include IBM Cloud, Oracle, and Salesforce, amongst others. On-demand models are available quite readily, with varying levels of services being offered and also competing prices.
What are Upfront costs?
Upfront costs are different. These are initially paid by a user in advance and generally involve a contract.
Such services can include on-site hardware stations, computers with different prices based on their capability, servers, GPUs, meeting rooms, and many more. However, nowadays, upfront costs can also be paid for Cloud services, usually referred to as Reserved Instances (RIs).
An in-depth comparison between the traditional On-premises and new Cloud infrastructure was made by us in this post.
How do they work?
An upfront payment model works mostly through on-prem infrastructures. Therefore, a company ends up owning the services it desires to provide to others or to benefit itself. For this reason, a company must contact hardware vendors, buy the requisite offices, build a facility from scratch, and hire staff immediately so that all the above, along with security, runs smoothly and aptly.
However, with the introduction of Upfront costs in the Cloud, such hectic processes are avoided totally.
Where can you find them?
As stated above, Upfront payments arise when a company usually wants to provide their service on their premises. As a result, a company reaches out to many vendors initially to buy hardware, to see what office space suits them best, to research what level of resources are required to cater to the need of the company in terms of its services to its clients once the company is set up and ready to go.
Hence, you can find such payment models in new companies that are just starting and are looking for office space.
With the introduction of Upfront payment models in the Cloud, you can find them in Google Cloud, Amazon Web Services (AWS), and Microsoft Azure.
The benefits of using cloud services have been discussed several times throughout our blog, here is one of those posts.
On-Demand vs. Upfront Costs
| On-demand Payment Model | Upfront Payment Model |
| No money is spent on hardware, except the hardware that requires utilization. | All hardware, whether in need of being utilized immediately or not, must be bought straight away if On-premises. |
| A company can even be set up virtually, without any physical space, since employees are likely bound to be working using cloud resources and can access them through their homes. | Office space that probably would not be required for a long time must be bought. The reason for this is because employees must be on-premises to benefit from the resources for the company to function as intended if On-premises. |
| When a company utilizes a cloud, it often gets security when it comes to its data through the contract that is signed between the company and the vendor while service is provided. Also, since it can all be virtual, no physical security is needed. | Security must also be hired from the get-go since the physical workspace and expensive hardware both need protection in case of any threats. The security must also be paid well so that it does its job correctly if On-premises. |
| Since everything can be done virtually or on a smaller scale, there is no need for architects and designers. | The design of the office must also be thought of and may require the need of an architect and a designer if on-prem. |
| The responsibility to take care of the servers is up to the cloud vendor. | Automation is lacking since staff must be trained to ensure that servers on-site are working as intended if On-premises. |
| There is resilience and elasticity since one server failing would not mean that the entire company operations must be stopped. | If a server fails, likely, the backup is not as good since servers are expensive, and therefore, the company’s performance may suffer. Plus, it is the company’s responsibility to resolve the issue or buy a new server if On-premises. |
Pros and Cons of On-demand and Upfront Payment Models
| Upfront Payment Model | |
| Pros | Cons |
| Customizable configurations can be employed if On-premises. | Maintenance on-site is the company’s responsibility. |
| A company can work with its policies rather than be answerable to a third party’s contract if On-premises. | Time-consuming installation and setup of all components take place in such a model if On-premises. |
| Costs are much lower than On-demand if Cloud-based. | |
| Most cons are negated if Cloud-based. | |
| Server blackouts are possible, and fixing them is also the company’s responsibility if On-premises. | |
| Investment and Business Risks are high. | |
| Available only when bought and deployed if On-premises. | |
| No unlimited memory and having a backup are expensive if On-premises. | |
| The rate of application launch and deployment is relatively slow if On-premises. | |
| Bandwidth enhancement requires new deployments and is the company’s headache with a low ability to handle large workloads if On-premises. | |
| All data is susceptible to malware and challenging to remove, plus the onus is on the company again if On-premises. | |
| Difficult to scale and resize if On-premises. |
| On-demand Payment Model | |
| Pros | Cons |
| Maintenance is offsite and the vendor’s responsibility. | No customizable configurations can be made but the standard vendors’ configurations. |
| Albeit server blackouts are possible, backups are easier to get and cheaper. | A company must oblige to the third-party vendor’s policies. |
| Easily scalable. | |
| Swift and easy installation, and available on demand. | |
| Low investments are needed, and hence lower business risks are involved. | |
| Unlimited memory. | |
| A high rate of application launch and deployment takes place. | |
| The vendor provides an excellent ability to handle large workloads with on-demand bandwidth enhancement. | |
| Malware removal is easy and not the company’s responsibility. |
Up-Front vs. On-Demand: Top Cloud Vendors
To understand how their infrastructures work globally, you can refer to this post on Clouve.
When we take a look at Amazon AWS, it’s clear that their on-demand model turns out to be considerably costly than their upfront cost model. More on that can be found here.
AWS t2.large Standard Three Years Reserved Instances Contract in 2018
| Upfront | Monthly | Effective Hourly | Amount Paid in 3 Years | |
| No Upfront | $0 | $58.55 | $0.080 | $2,107.80 |
| Partial Upfront | $976 | $27.08 | $0.074 | $1,950.88 |
| All Upfront | $1,834 | $0 | $0.070 | $1,834 |
We can draw a few insights from the “Amount Paid in 3 Years” column above:
- The more is paid upfront, the more is likely to be saved by the end of the service rendered.
- The more a person relies on ‘pay as you go,’ the more they eventually end up paying.
- The only time an upfront model wouldn’t be preferred is if the necessary amount of cash is not in hand for a company.
2017 Per-Year Costs of On-demand and Upfront Services: AWS vs Google Cloud vs Microsoft Azure
| VM Type US Linux | AWS On-demand Hourly | Google On-demand Hourly | Azure On-demand Hourly |
| Standard 2 vCPU w Local SSD | $0.133 | $0.136 | $0.100 |
| Total in 1 Year | $1,165.08 | $1,191.36 | $876 |
| Standard 2 vCPU no Local SSD | $0.100 | $0.095 | $0.100 |
| Total in 1 Year | $876 | $832.2 | $876 |
| Highmem 2 vCPU w Local SSD | $0.166 | $0.159 | $0.133 |
| Total in 1 Year | $1,454.16 | $1,392.84 | $1,165.08 |
| VM Type US Linux | AWS RI 1 Year | Google RI 1 Year | Azure RI 1 Year |
| Standard 2 vCPU w Local SSD | $867 | $884 | $508 |
| Standard 2 vCPU no Local SSD | $622 | $524 | $508 |
| Highmem 2 vCPU w Local SSD | $946 | $1,013 | $683 |
A few insights from the two graphs above:
- Microsoft Azure appears to be the cheapest out of all three vendors, although generally speaking this is a highly debatable, and mainly depends on the specific needs of each user.
- On-demand model looks to be more costly for all three compared to their resources.
We can see the Cloud Services are playing quite an important role in making the On-demand model more desirable. Consequently, you may feel like having a read regarding the current and future state of the Cloud here.
Conclusion
Finally, having had a look at the side-by-side of the two payment models and their cost requirements, it becomes dependent on what the end goal of your company is as to which model you might choose.
If we’re talking strictly cloud providers, choosing reserved instances aka upfront, over on-demand might be the best route to go if you’re a smaller-scale business. However, even with that choice there are many “buts”. Having a thorough assessment of your IT needs is ideal before making your first step towards the cloud.
And that’s why we’re here for at Clouve. As affordable IT outsourcing providers, we fully take care of your DevOps issues, including cloud migration and planning, maintenance, troubleshooting, and a 24/7 support system. With Clouve, you’re truly leveraging the cloud! Reach out to us or sign up here for your FREE trial.
