3 Ways Cloud Computing Powers Economies of Scale
It’s a goal for every business leader, CFOs in particular, to seize savings and cost-efficiencies wherever possible. In the age of cloud computing, though, it can seem like there are as many spending pitfalls as there are saving opportunities.
As organizations migrate to the cloud and grow into the digital landscape of modern IT, meeting budget constraints requires an understanding of the emerging factors that power economies of scale in cloud computing.
Key Takeaways:
- Cloud computing powers economies of scale outright by enabling bulk buying of public cloud resources from third-party vendors.
- A more indirect way of powering economies of scale is through standardization, lowering the costs of maintenance and purchases by choosing consistent hardware.
- The cloud also makes it easier to flexibly respond to consumer demand, a capability that becomes increasingly important as operations scale up.
What Are Economies of Scale in Cloud Computing?
Economies of scale broadly refer to the advantages that an organization reaps when it reaches a scale of operations that is efficient in terms of cost and results. A larger company can, for example, save on production costs because that cost is spread over a larger number of products, services, or other offerings.
Economies of scale in cloud computing specifically refer to the savings that an organization achieves by acquiring large amounts of cloud resources at relatively low costs. Scalability is at the forefront of selling points for the cloud, and that is largely due to the ability of consumer organizations to provision storage, compute, and other infrastructure resources in the cloud in a quick and cost-efficient way.
A business relying solely on in-house datacenter hardware will always have a limit to its resource capacity and production levels. This may make certain economies of scale unattainable.
In an increasingly cloud-native IT landscape, cloud computing economies of scale can create opportunities for other economies of scale throughout the business. IT decision-makers have the power, then, to improve cost-efficiencies on a company-wide level by being mindful of the way that cloud computing powers economies of scale.
1. Cost-Saving With Cloud Computing
A simplified way to convey the principle of economies of scale in cloud computing is as cost-saving capabilities. In the cloud, this manifests primarily through bulk acquisition. Organizations can purchase massive amounts of cloud resources or obtain them as needed through an as-a-service subscription model, thereby fueling scalability while minimizing expenses.
Migrating to the cloud also removes the burden of power expenses from the enterprise. Larger datacenters, such as those maintained by cloud platform providers, also tend to have more efficient power utilization due to demand aggregation processes. This means that a cloud shift offsets energy spending as well as carbon footprint.
Datacenters necessitate configuration and maintenance, as well as specialized personnel who can perform those tasks. Labor costs add up, but this presents yet another way that organizations can find cost savings in the cloud.
Not only that, but cloud providers are also capable of minimizing their per-machine maintenance costs through standardization and large-scale automation. This can translate directly to economies of scale in cloud computing by way of appealing service prices for customers.
2. Standardizing on the Cloud
Adopting a cloud operating model presents an opportunity for organizations to standardize their infrastructure. Decision-makers can choose to do this either by remaining within a cloud provider’s ecosystem or by operating on a platform like Nutanix Cloud Infrastructure that leverages abstraction to standardize across disparate clouds in a multicloud environment.
This standardization leads to homogenous hardware needs, which enables bulk buying of physical devices. The ability to lower expenses for on-premises hardware is still important when operating in the cloud as this facilitates an adaptable and flexible hybrid cloud strategy.
With the use of similar hardware built on a consistent architecture comes ease of maintenance and updates. This is another way to lower in-house labor costs, but the simplicity of maintaining identical systems also opens up the possibility of automation.
Standardization ultimately creates the opportunity for one-size-fits-all solutions for security, automation, and other software needs throughout the organization.
3. Responding Flexibly to Consumer Demand
Companies of all stripes must carefully consider the demand for their services, especially when it comes to online aspects of the business. The demand for a service can fluctuate based on the time of day, industry factors, and unexpected growth.
Being able to fully satisfy consumer demand without interruption with in-house resources requires installing enough hardware to fulfill all requests during peak demand periods, even though those periods might account for a small fraction of your overall uptime.
Taking this approach goes against the concept of economies of scale in cloud computing. While installing a vast amount of datacenter hardware ensures that a company can always meet demands, it also increases energy consumption and maintenance costs and might even require renting additional real estate to accommodate the datacenter expansion.
Cloud computing, on the other hand, allows businesses to use only what they need when they need it. The enterprise can flexibly respond to consumer demand by acquiring more resources from the cloud provider, all without making any changes to the on-premises datacenter.
The Platform to Maximize Economies of Scale in Cloud Computing
Even organizations that eagerly adopt a cloud operating model are finding that costs are definitely higher than they could be.
Nutanix Cloud Manager provides that capability to organizations operating in the Nutanix ecosystem. With comprehensive cost governance features, IT leaders can quickly view their total cost of ownership in the cloud at any scale and immediately take steps to intelligently optimize or even automate spending patterns.
With effective cost governance tools on a simple-to-use cloud platform, achieving economies of scale in cloud computing can quickly become a matter of fact. Following this natural progression toward cost efficiency is an actionable path toward renewed success in a cloud-native future.
Learn more about other cost-saving measures at the infrastructure level for businesses undergoing digital transformation.
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