How to Calculate an Accurate Cost of Cloud vs. Cost of Inertia

There was a very helpful article written recently on the 'hidden' costs of using external Cloud storage services.  This is important information when you are sitting down to determine the business case for moving data outside your data center.  The article correctly points out the basic cost for storage from someone like Amazon Web Services can be as little as $0.15 per GB per month, and that volume discounts can bring this down further.  However, additional features to support WORM or information lifecycle management, will increase the pricetag towards $1.00 per GB.

Some services charge to upload data, some to download, some for both.  And if you have too much to send over the wire, you are welcome to send a tape.  But that will cost you, too.

And then there's connectivity costs.  If you are already max-ed out on your internet connection, then moving data to the cloud will require incremental bandwidth.  Some enterprise-class services actually require bundled bandwidth or even direct circuits, in order to provide an SLA.

So if all this sounds daunting, let's look at your current cost of storage.  The rule of thumb is that for any IT capability, the direct cost (i.e. what you buy and deploy) is only 20% of the total cost: the rest is the cost to maintain it.  This indirect cost % appears to be increasing over time -- both a function of improved value in IT products, but also an increase in wages, facilities, energy, etc.  And this is also true for storage.

TCO components of your storage base case need to include the cost of the hardware -- either the entire cost if looking at a 3-year period, or an annual depreciation.  I'd assume you're looking mostly at Arrays, but you may also have servers involved for some supporting application.  Make sure you're comparing apples to apples with the complete outsourced offering.  If this is a decision to buy another NAS filer vs. a contract with someone like Rackspace, then you need to factor-in the complete deployed cost.  Include any installation, training, and related on-site switching expense like for instance local data migration.

Then add system software and/or array-based software licenses.  Add annual maintenance and support fees.  Add the allocated Server Administrator cost for the devices: the annual burdened wages (i.e. salary + 15% or more for taxes, benefits).  This should be a big line item: staff costs are consistently 40% or more of total costs in the data center.  Each admin can manage just so many TBs of storage.  You need to figure this out for your current environment; even if an analyst or vendor study says that one admin FTE can handle 10TB in an ideal world, what really matters is what you are running in your data center today.

We're not done: you can't forget the allocated cost of the data center space.  This includes the rent of the space, and the power, the heating and cooling, and if you need to pay for a set of hands within the facility when changes are made.   I wish I could offer a rule of thumb here, but it depends on whether you have your own data center and what 'tier' of DC it is, or whether you are using a co-lo.  There are variables in terms of wattage density per rack, efficiency of the cooling system, and probably other key variables.  For many companies their problem is that their space is either obsolete or they are out of power, or space, or both.  Anyway, this may take a little work to get to, but you need to add a cost to reflect the data center operations.

Now look at the numbers.  Assuming you are one of the lucky ones who still have the ability to add more storage internally, the business case for using the Cloud should be more compelling, especially where you are talking about a smaller amount of storage, have a smaller (i.e. less scale-efficient) operation, and especially if your needs are more temporary or at least not expected to be consistent over the life of the hardware (e.g. you don't need to use all the storage for all that period of time).

IT is definitely moving thier resources to the cloud, and it's all about the economics.  Sharpen your pencil and make sure you're taking an accurate picture of your internal vs. your expected Cloud storage costs.  Good luck!

Cloud is about more than cost savings

I just read an insightful blog post about Cloud and the recent Sidekick outage that got me thinking about a couple things:

1. Cloud is not about just cost savings. I remember when ASP sales guys would get asked by a customer about ROI. And as the ambitious marketer enabling them, I’d quickly assemble a tool kit of datasheets with financial illustrations, business savings solution write-ups, brand-name analyst TCO whitepapers and detailed spreadsheets with 3-year cost savings analysis. The industry has now moved on to slick web and flash-based ROI tools that do everything but the direct withdrawal from the prospect’s bank account.

But what we learned was that starting with ROI was the kiss of death. If the customer only cared about cost savings then they’d never buy. It would be too easy for the tech guy to raise the specter of technical bogeymen that would always trump the potential savings. There needs to be a perceived risk-adjusted net benefit of going out-of-house.

2. Cloud service levels will typically be better than you can deliver yourself.  Gartner traditionally put typical IT availability at 98% to 99.5%. 3-9’s of availability or better was reserved for ‘high availability’ applications. These were typically the most business-critical that got the clustering software, gold-tier storage, etc. If they say the Sidekicks were out for 4 ½ hours or so, and if this is the only outage they experienced all year, then this is still a respectable 99.95% uptime. Not bad for a service that appears to be based on IM-ing about concerts and adolescent hookups. I'm seeing many service providers building out with top-quality hardware, software and expertise that can only be afforded due to their large scale.

Going to the cloud has to be for more that just cost savings: It’s for avoiding the investment for infrastructure you don’t want to buy. It’s for getting services you wouldn't otherwise want to manage. And it’s for realizing SLAs, uptime, security, etc. that are typically tough to deliver yourself.