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In lesson one, we met the six advantages of cloud computing. Now we'll look at the money behind

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them, because the Cloud Concepts domain asks about cloud economics directly.

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We'll cover two ideas. First, the difference between fixed and variable costs,

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and between capital and operating expenses. Second, what running your own data center really costs,

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and why the cloud can cost less.

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Start with two kinds of cost. A fixed cost stays the same no matter how much you use.

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When the store buys a server, it has paid for it whether the server is busy or idle.

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A variable cost rises and falls with usage. In the cloud, the store's monthly bill follows its

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traffic: a quiet month costs less, and a busy month costs more.

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Accountants describe the same idea with two terms. Capital expenses, or CapEx,

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are up-front investments in physical assets, such as servers, buildings and perpetual software

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licenses, used over several years. Operating expenses, or OpEx, are the day-to-day costs of running

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the business. Moving to the cloud shifts spending from CapEx to OpEx, so you don't have to forecast

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and pay for years of capacity in advance.

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So what does running your own data center actually cost? The visible part is the equipment:

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servers, storage, network gear such as routers, switches and firewalls,

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and software licenses. When people compare on premises with the cloud, they often stop here.

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But this is only the tip of the iceberg.

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Below the waterline are the costs that are easy to forget: data center space,

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power and cooling, physical security, the staff who install, patch and repair everything,

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maintenance contracts, and replacing hardware every few years. And there's idle capacity:

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everything bought for the busiest day sits unused most of the time, but it was paid for anyway.

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That's why fair comparisons use total cost of ownership, or TCO: every cost,

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over the same period, often three years. Count everything on premises, from hardware to staff

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time. Then count everything in the cloud too: usage, data transferred out of AWS,

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the migration itself, and training. The cloud isn't free, but once the hidden costs are included,

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it often costs much less.

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AWS offers tools for this. The free AWS Pricing Calculator lets you model a solution and estimate

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its AWS costs before you build anything. Migration Evaluator helps you build a data-driven business

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case: it analyzes your existing servers, how much they're really used, and the licenses you already

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own, then compares what running them on AWS would cost.

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Finally, remember economies of scale from lesson one. Because AWS combines the usage of hundreds

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of thousands of customers, it buys and runs infrastructure at a scale no single company can match,

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so its cost per unit is lower. AWS passes those savings on as lower pay-as-you-go prices.

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On the exam, that's a cost saving of moving to the cloud, not something you configure.

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Here's how the exam asks about this. Spending that doesn't change with usage is a fixed cost;

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spending that follows usage is variable. Buying hardware up front is a capital expense;

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paying monthly for cloud services is an operating expense. Forgotten costs like power,

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cooling and staff point to total cost of ownership. Estimating AWS costs before building means

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the AWS Pricing Calculator, and a business case from your current servers means Migration Evaluator.

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To recap: fixed costs stay the same while variable costs follow usage, and the cloud turns large

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capital expenses into operating expenses. A fair comparison counts the total cost of ownership,

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including the hidden costs below the waterline. And economies of scale let AWS charge lower prices.

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Next, we'll see how to lower your own cloud bill by rightsizing, automating and choosing the right

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licenses.