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Enterprises hit tipping point in AWS cloud vs. private cloud costs

As enterprises grow, some discover cloud costs are lower in private data centers, but long-term AWS cloud could hold value.

Anyone considering a move to the public cloud must evaluate workloads carefully first, as AWS cloud costs may far exceed on-premises infrastructure costs.

Companies that plan a public cloud strategy can't just pick up a virtualized environment of static applications, "forklift" it over to the public cloud and call it a day, experts warned.

"Even just taking the sticker price of a medium virtual machine running 24x7, associated with 50 GB of storage and a 5% to 10% growth rate, and snapshots and operating system licenses, you can start to see how quickly that stuff starts to add up," said Kyle Hilgendorf, an analyst with Gartner Inc.

Gartner advised clients on public cloud costs vs. private cloud costs using a spreadsheet that takes into account the number of machines an organization will run; the number of hours per day or per week they'll run; and the amount of storage these machines will generate. It also included the licenses that need to be paid for on a recurring basis; how many times and how often snapshots occur; the rate of change for the data; and how much new data they are going to generate.

Still, once you get to the point where you know you're running approximately the same number of servers every month, it may make sense to spend the money to stand up your own hardware, said Mike Ryan, a consultant for Epitech, a cloud consulting firm for startups.

"You're paying for the elasticity of Amazon, and if you're not using that, it makes sense to bring things into your own data center," Ryan said.

Very large enterprises have their own economies of scale that make staying in the data center business even more compelling, such as end-user license agreements with vendors, including Microsoft and VMware, Hilgendorf said.

Tipping point tales from the trenches

A little over two years ago, Nexon America began moving workloads to Amazon Web Services (AWS), beginning with the traditional "low-hanging fruit" of test and development.

"We started with Amazon in 2011 and within two months … we were spending $150,000 a month, and none of the actual services we were using Amazon for were revenue-generating," said Darryl Dugan, IT manager for Nexon America.

"Teams can have a bad habit of building stuff and then just continuing to let it run, as opposed to building it up temporarily and tearing it down. … If you just build things and let them run on rented equipment, it's going to be very costly," Dugan said.

The company regrouped and decided to move its test-and-development workloads back in -house to a VMware private cloud, which also gave developers speedier self-service. The company now uses AWS to perform load testing from outside its network on its games -- to the tune of about $6,000 per month.

"Amazon [also] has available resources in case we get in a pinch and need more capacity than we have in our private cloud," Dugan said. "It's not really one against the other, it's just what makes sense, what's available, what can we do to solve a business problem right now?"

The public cloud's scaling flexibility is great during the growth phase, but longer term, IT pros like Scott McKay, CTO of ZappRx, wonder where the tipping point back toward private cloud will be.

This is especially true for ZappRx, a prescriptions management company, which is subject to regulation under the Health Insurance Portability and Accountability Act (HIPAA).

HIPAA dictates that regulated organizations retain personally identifiable information for six years, and only allow data access to those who are authorized. The way you get this level of HIPAA-compliant security within AWS is through dedicated hardware, McKay said.

This changes the public cloud cost equation significantly for McKay's company because of the cost of dedicated servers attached to ever-expanding repositories of storage.

"When you say, 'Oh no; I need this on dedicated hardware,' $120 [per month] can become $2,400, multiplied by many machines," McKay said. "Things are different for everybody, but the dedicated hardware thing is a pretty interesting twist. HIPAA compliance really profoundly affects where this tipping point is located."

Thus, ZappRx has begun to analyze what it would take to build a private cloud for its requirements. The build-out could come in well under $200,000, according to a recent cost analysis performed by a cloud consulting firm, McKay said.

"It might be, for instance, [be] that we could encrypt the data and send it out to AWS Glacier for long-term storage, and then keep everything else on a local system and reduce our operating costs," McKay said.

ZappRx has yet to decide where it will build out its initial infrastructure, but is still leaning toward AWS.

Tipping point or seesaw? The case for public cloud

While cost calculations may favor private cloud for some companies, one size does not fit all -- and the agility of the organization in the cloud can be as crucial to savings as careful prior planning, experts said.

Take Flipboard Inc., for example, which creates social news magazines for users of its online app. Despite a constant need to add new machines to its infrastructure, it has found a way to drop its cost per monthly active user from 20 cents to less than one cent, Joey Parsons, head of operations for the company said in a keynote presentation at AWS Summit in San Francisco last month.

One way they do this is through heavy use of three-year Reserved Instances, Parsons said.

"You're essentially getting an instance for three years at a cost of just nine months," he said.

Whenever there's a new instance type, Flipboard immediately runs a workload on that new instance to see how it performs with a portion of its production traffic.

"If it holds up, is fast, and the pricing makes sense, we'll switch over an entire fleet of our services and reap the benefits," Parsons said.

The recently added C3 and M3 instances have done exactly that.

"We've been able to replace a significant amount of our C1s and M1s with fewer C3s and M3s, simply because of the 'bang for your buck' on processing power and the fact that they're backed by [solid-state drives]," Parsons said.

Operational expenditure analyses have to include people, too, Parsons said.

"If you looked at our Amazon footprint and equated that to a traditional data center experience, we'd need a huge operations staff at Flipboard, from network engineers managing the network, data center staff constantly racking new machines, dealing with provider and procurement relationships -- we'd easily have a team of 15," Parsons said.

"We've been able to scale to over 100 million readers with just a full-time staff of three," he added.

AWS officials made their own points at the Summit about the long-term value of public cloud over private data centers.

"It's not a binary decision," said Andy Jassy, senior vice president of Web services, in his keynote presentation. "We know that many enterprises have data center assets that they're not ready to retire yet. What they really want is the opportunity to more seamlessly run those on-premises data centers as well as AWS. And so we've been working over the last couple years … to make it easier and easier to integrate … on-premises footprints with AWS."

AWS has also shown sensitivity to public cloud cost concerns with free tools for customers to better assess costs as they grow; the most recent of these, Cost Explorer, debuted last week.

Still, it's clear AWS thinks its cloud is more cost-effective than on-premises infrastructure builds. Jassy's keynote presentation was backed by slides highlighting the benefits of public cloud, including no upfront costs, economies of scale, and hundreds of new features and services every year.

Preparing for the future is an important point to ponder for some cloud experts, who say even detailed cost analyses that include electricity, cooling and personnel still mask the significant costs of keeping up with changing technology.

"There are definitely facilities managers who live and die by these analyses -- but they fundamentally all assume that things don't change," said Ben Grubin, director of product management at Cloud Technology Partners, a cloud consulting firm based in Boston. "You can immediately turn a dial [to change things] with servers at Amazon. You can't turn a dial on two servers sitting under a desk."

Beth Pariseau is senior news writer for SearchAWS. Write to her at or follow @PariseauTT on Twitter.

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