Updated 26 October 2026 · Published by Zoorik
Cloud TCO (total cost of ownership) is the full cost of a workload in the cloud over several years. It counts more than your monthly cloud charges. You use it to compare the cloud with on premises.
TCO meaning in cloud computing
Microsoft calls TCO a financial estimate of an IT project’s impact over its whole life. Its Azure Migrate tool compares Azure and on-premises costs in seven groups:
- compute (servers or VMs, and their licenses)
- storage
- network
- security
- facilities (datacenter lease and power, on premises only)
- labor (IT admin time)
- management (monitoring, patching and backup)
Total cost of ownership: cloud vs on premises
On premises, you buy servers up front. Azure Migrate spreads their cost over a 4-year life. In the cloud, you pay monthly instead.
A fair comparison also counts:
- Migration, which AWS lists beside on-premises and new AWS costs.
- Paying for both while you move. Azure Migrate’s docs show 20% moved by year 1, 50% by year 2 and all by year 3. You set the pace.
- Staff time for operations and management, which AWS says to count.
- Leaving later, which can mean egress fees. AWS waives data transfer out to the internet for eligible customers who move all their data off AWS, once AWS Support approves.
Why it matters for your cloud cost
- Comparing only prices leaves out power, staff time and the move.
- After the move, using less reduces the cloud part of your TCO.
- The free assessment works out what your clusters and disks could save.
Read next: How to reduce cloud costs
Sources: Microsoft Learn, “Business case in Azure Migrate” (opens in a new tab); AWS, “Detailed business case” (opens in a new tab) (AWS Prescriptive Guidance); AWS, “COST05-BP03 Perform a thorough analysis of each component” (opens in a new tab) (Cost Optimization Pillar); AWS, “Free data transfer out to internet when moving out of AWS” (opens in a new tab) (AWS News Blog).