Cloud Computing and the Total Cost of Ownership

TCO

Cloud computing has been a widespread topic in the software industry for the last several years. There are two main concerns for people contemplating a move of their infrastructure to the cloud. The more often discussed topic is practicality. People want to know how disruptive such a transition will be to their business in both the short and long term. Adjacent to this concern is the worry that some business services will be sacrificed because support of it in the cloud is not feasible. The second concern that people typically don't want to talk about is money. If you transition to the cloud you will naturally pay to run your business in the cloud. Is this necessarily cheaper than a traditional data center? That is a deep question because you can look at the price for compute, storage, and database use in AWS but it's difficult to compare this to traditional data centers. The data center center has obvious cost like space allocation, power, and cooling. There are hidden cost though like operating system license fees and staff payroll. The total cost of ownership (TCO) is the metric that is used by AWS to compare the direct and indirect cost of running your IT business. Understanding the total cost of ownership can help drive intelligent business decisions.

AWS is Probably Cheaper

To really know what the cheapest option in your specific case you need to make a detailed comparison of your cost but it is likely that AWS would be substantially cheaper for your business. There are many reasons to make this claim but you can already start to see a huge savings when realize that cloud computing means that you defer the cost of running the data centers to Amazon. Amazon has a motivation to lower hardware cost, improve efficiencies, and lower power consumption. These optimizations combined with growing economies of scale save money that Amazon can pass onto AWS clients in the form of lower prices. Amazon has in fact lowered the price 20 times over the past six years. Customers have a further chance for savings if they take advantage of reserved instances and custom pricing opportunities. This has been a featured topic in our blogs before.

The AWS TCO Calculator

For businesses sincerely considering moving their business operations to AWS they can use the TCO calculator to help make a direct comparison between their current cost and cost incurred by using AWS systems. The beauty of the TCO calculator is it boils the business technology use down to the broad categories of geographic region, servers and storage. It has an advanced mode also. Here is what it looks like.

For simple vanilla inputs the calculator can predict savings over a three year time horizon. Here is some of the output for a simple case.

The costs are further broken down by storage and compute

Cost Limiting Services

AWS offers several other services to limit your overall cost and protect your investment. Similar to the TCO calculator there is also a simple monthly calculatorthat will help you plan you expenses. Another service worth mentioning is Trusted Advisor. Trusted advisor can scan your infrastructure against AWS best practices and look for not only cost optimization but performance, security, fault tolerance and encroachment on service limits.

Apples to Apples

A few deeper financial concerns have been introduced here about migrating your infrastructure to AWS. Hopefully, the dialogue presented has helped you discover the true cost of an online business and you are now ready to make meaningful comparisons where price is concerned. We have also introduced some tools to give a guideline for making real decisions so that you can move forward feeling informed an confident.