The Hidden Cost of the Cloud: Bandwidth Charges

Microsoft is spending hundreds of millions of dollars to build out its next generation of data centers to host itscloud computing offering, Windows Azure Platform. While the company is clearly innovative in its data center designs and plans, the true reason behind its push toward the cloud may be its ability to turn a commodity product –- bandwidth –- into high gross profits. A quick analysis that we here at Panorama Capital did shows that the commodity business of selling the transfer of bytes may be one of the most profitable parts of running a cloud service.

Azure charges 10 cents for the bandwidth to upload and 15 cents to download a gigabyte of data. The disparity in pricing, I believe, is meant to encourage Microsoft developers to move lots of applications and associated data into Azure and then have lots of users access the applications from the same platform.

Let’s assume that a customer of Azure develops an application that downloads 10 gigabytes of traffic per day, 20 business days a month. That means the application downloads a total of 200 gigabytes of traffic in a month (and to make the point, let’s assume that the upload traffic is minimal). Azure charges the customer $30 per month for this bandwidth use (200 gigabytes times 15 cents per gigabyte), which seems like a small amount to pay.

Continues @ http://gigaom.com