As more and more enterprises become comfortable with the concept of using the public cloud to replace portions of their on-premise infrastructures, I've seen growing surprise among IT organizations that the cloud does not necessarily save them any money. I'm not entirely sure what has given rise to the widely held impression that the cloud is always cheaper than on-premise infrastructure, but focusing solely on cost misses the point of what the public cloud is really good for.
The most obvious benefit of the public cloud is that it lets you access a very small slice of an enterprise-class infrastructure at prices that directly reflect the size of the slice. For small businesses that want a couple of servers or a small amount of storage for backup, the cloud can usually offer what you need much more cheaply than any similarly priced on-premise option, even over a long period of time.
The reason is those small workloads are not large enough to fully use the on-premise hardware and software that you would have purchased for internal deployment. If your needs grew to the point where you could fully use an enterprise-class backup, storage, and virtualization infrastructure, the apparent cost benefit of the cloud would melt away.
However, that does not mean the cloud isn't a worthy option -- it simply wouldn't be cheaper anymore.
Why the public cloud can make sense beyond its price
If the cloud is not cheaper, what's the point? In a word, capability. The cloud is not an apples-to-apples replacement for your on-premise environment but a way to get capabilities that might be cost-prohibitive or even impossible to deliver on-premise. Aside from the pay-per-usage pricing, the cloud offers the ability to scale both up and down at a moment's notice, and it largely eliminates the operational labor required to do so.
Additionally, replicating the data durability and overall reliability offered by some cloud offerings would be incredibly expensive to do in even the largest on-premise infrastructures, especially as it relates to storage. For proof, next time you update your on-premise storage infrastructure, ask your vendors to design a storage infrastructure capable of delivering 11 nines of durability (99.999999999 percent -- the stated durability of Amazon's Simple Storage Service) and gird yourself for some sticker shock.
The trick is to consider not just cost but also the capabilities delivered by going to the cloud. In many cases, those capabilities may be well worth the additional cost. In others, they won't. It's also critically important to reconsider your options with some frequency. As your requirements change over time, the cloud might become or cease to become the best tool for the job.