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Will I Save Money by Moving to the Cloud?

Level 12

This post is post one in a small series, taking an atypical look at the public cloud and why you may or may not want to leverage it. Part 2 asks the question I'm Still On-Premises, Is That OK?  ​and in part 3 we explore SaaS in Beyond IaaS, Cloud for the SMB, the Enterprise, and Beyond!

Did you know AWS came about partly because Amazon realized they could recognize cost efficiencies within their own internal cloud? Did you also know AWS launched right around the same time the virtualization revolution took off? I believe these two massively disruptive technologies (virtualization and public cloud) launching around the same time caused a lot of people to equate the cost savings immediately recognized from virtualization and transferred the same philosophy to cloud. In fact, this was one of the earliest rationales for moving to the cloud—you’ll save money. “Cost” is a broad paradigm and it’s not as simple as saying “if I’m all in on cloud, I’ll save money.” Today we’ll explore some of the cost decisions you’ll have to make, whether your plan is to stay on-premises or if a move to the cloud is in your future.

Before we go any further, let’s settle on a few definitions. “The cloud” is no more a single entity than “the web” is. Cloud offerings are diverse, but for the sake of these conversations, I’d like to define the three primary types.

  • SaaS (Software as a Service) – You subscribe to and access software that most likely lives elsewhere. Salesforce.com is one well-known example.

  • PaaS (Platform as a Service) – All you do is develop applications and manage data in a PaaS. Everything else is abstracted away and operated by the provider.

  • IaaS (Infrastructure as a Services) – You own and manage everything from the operating system up, and the provider owns the underlying infrastructure. It’s the closest to your traditional on-premises data center since you manage the server OSs themselves.

For the sake of time, today we’ll primarily focus on the differences between IaaS and on-premises solutions and how you pay for them.

Cash Flow

Does your business operate primarily on an Operational Expense (OpEx) basis? Are significant cash outlays OK within the organization? How you answer questions like these may help you decide right away whether on-premises or cloud is right for you. Nearly all cloud offerings sell on an OpEx model, which you can think of like a subscription, where you pay for what you use on a monthly basis. Traditionally, on-prem infrastructure was sold outright, and hence incurred large initial cash outlays. The prospect of these large capital expenditures can be undesirable or even scary for many organizations, particularly young ones, needing to delicately balance their cash flow. The cash decision is less of a differentiator than it once was. Some cloud providers ask for long-term commitments to get the best rate, and traditional infrastructure vendors are now more flexible with their financing options. Nonetheless, the CapEx vs. OpEx question is one you’ll want to account for in your organization.

Total Cost of Ownership (TCO)

Coming up with a TCO should be simple, right? The months I spent building a lift-and-shift IaaS cost comparison model would disagree. There are a lot of commonalities between what’s required to run an IaaS solution or on-prem solution. With both, you’ll need to backup and monitor your solution. You’ll also need to protect it from bad guys. Let’s for now consider these items a wash. You also pay for your operating system, so what’s primarily left to differentiate IaaS from on-premises is the infrastructure to run your stuff. If you’re on-premises, you’ll need to account not just for the hardware and virtualization platform, but everything down to your environmental controls (power, cooling, fire suppression, etc.), the physical space your infrastructure occupies, and all the odds and ends (racks, wires) to make all the blinking lights go. Yes, a colocation facility can help with many of these, but that’s a conversation for another day.

On the other side of the coin, with an IaaS solution, you can sometimes get away with paying for just what you use, but you’ll be paying for what you use in perpetuity. If you’re the type of car buyer who drives a car until its wheels fall off, an OpEx model may not be attractive to you. Further, if you keep your infrastructure for long periods of time, on-premises will likely save you money, as you can depreciate the gear over a longer time. Lastly, when you have a system storing data in the cloud, you need to consider egress costs, where it’s free or cheap to get your data into the cloud but potentially expensive to get your data back out.

So, what’s the verdict when it comes to TCO? Remember TCO is measured over time. Cloud can be a significant cost savings, especially if your organization has a flexible workload, where you don’t need to outright buy the capacity and performance to handle peak workloads. However, if your workloads and environment are stable and predictable, depreciating the costs of on-premises equipment over a longer time period may make fiscal sense.

Opportunity and People Costs

Spinning a server in the cloud up or down, and dynamically changing the infrastructure it supports is a massive selling point for those who want to go faster and push the envelope. What if your business or industry doesn’t operate this way? You need to decide if it’s worth taking time away from your core competencies to embark on a cloud endeavor.

As it pertains to people costs, you need to understand your business, your people, and what makes them tick. We’ll continue our exploration of these topics in the second part of this atypical look at the cloud:I’m Still On-Premises, Is That OK?

36 Comments
smttysmth02gt
Level 13

Thanks for the article!  I'm pretty far removed from the financial part of our business, but the idea of long term savings makes sense.

scott.driver
Level 12

And thank you for engaging on it!

tstark
Level 9

Thank you for this article.  I found the article to be well written and informative.  The cloud does not always save a company money!

vinay.by
Level 16

Thanks for the article.

scott.driver
Level 12

Thank you for the kind words.

Do you have experience with this topic, that you could share?

Cheers!

rschroeder
Level 21

You may never be able to determine how much you're truly saving in the cloud due to a growing list of intangibles:

  • Did someone physically access your data in some cloud data center without your knowledge?  If they did, were they able to copy or manipulate your data?  You don't have physical control of someone else's computer (that's all the cloud is).  And you might not even know someone copied your data & used it or sold it or changed it.
  • Can you prove your cloud-based data hasn't been logically accessed, downloaded, maniupulated without your permission?  If anyone wanted to find an attractive target, the cloud has provided it.
  • If your users experience slower performance for daily tasks and mission-critical applications because of latency associated with putting your resources in the cloud, what is the actual cost to your business in lost productivity and in customers who move away from your services to companies with faster services?

Suppose Microsoft told you they'd charge an additional $6M per year if you continued hosting their apps locally in your own secure data centers with LAN speeds to your business.  Is that offset by the amount of lost performance due to any of the following?

  • Cloud latency
  • ISP reliability or throughput challenges
  • WAN provider resilience failures
  • Firewall NAT/PAT/hardware resource exhaustion (which requires an unplanned $ X hundred K in hardware upgrades)
  • Additional firewalls may need to be installed at regional or neighborhood sites due to cloud-based apps requiring direct Internet Access instead of running it over the WAN to your local data centers, meaning no longer being able to filter everything at one choke point, and adding 100+ firewalls and a matching number of new SD-WAN routers, plus adding a hundred more Internet circuits with recurring monthly charges.   And the staff & support contracts to manage the extra hardware . . .

Yes, the cloud is touted as highly available and a solution to so many needs that businesses easily see--like data center rental, cooling, server support, software contracts, fiber provider contracts and costs for cross connects.

You might believe going to the cloud means saving buckets of money because you no longer need data centers or servers, staff to manage them, etc.

Now imagine experiencing a few extended outages to cloud-based services for half a day or a whole business day in the last two years since the cloud started getting big.  Those outages prevented your employees & customers from being able to access data for hours at a time in the middle of a busy business day.  Your business lost revenues, lost customers, and gave a negative impression on your existing customers & employees.  You could have avoided all that by keeping your data and apps within your own data center.  Was it a worthwhile exchange for the savings from Microsoft?

Until you can put a dollar figure on the lost productivity of a hundred, or a thousand, or ten thousand employees waiting twenty to sixty seconds for every O365 document or e-mail to open, and until you can show how many customers are lost due to errors that couldn't happen back when you hosted apps in your own data centers on your own servers internally, you might not ever be able to say how much money the cloud has saved--or lost--your company.

scott.driver
Level 12

rschroeder​ This is fantastic, and you make very good points. Thank you so much for adding valuable insight to the conversation!

rschroeder
Level 21

Thank you for the kind words, scott.driver​.  I love the idea of the cloud, and I've seen some unfortunate disappointments and surprises when a few businesses have moved to it.  I like to think those are the exceptions, but I fear more people experience problems and unanticipated expenses during the move there and the time immediately afterwards (troubleshooting complaints).

It's possibly, perhaps likely, that more cloud problems occur than businesses are willing to admit.  Certainly businesses that become compromised often don't report the issue, if for no other reason than not wanting to draw the attention of their customers or stockholders.  Not to mention the authorities who may come in to inspect and implement controls and corrections and fines.

gfsutherland
Level 14

Rick brings up some excellent points. The real bottom line here is "your results may vary!"  and "trust, but verify!".

Terrific article and one we all are struggling with at some level every day.

brianj
Level 12

I have been wondering if there is a given size above or below which cloud computing is the better financial choice. No answer yet.

scott.driver
Level 12

Please bear in mind that this is one mans thoughts and experience... that being said I spent months building a costing model.

For Us, our IaaS workload (lift and shift) was very static and not at all refactored to take advantage of the cloud. In our model, shorter time periods made some financial sense to be run in an IaaS cloud. Think dev or test environments that can come or go.  For us, any long term commits over ~2 years didn’t make fiscal sense.

There are many decisions that go into your cloud strategy. I explore several more of them in my next post. I hope you find some value in them.

Cheers

fmasotti
Level 12

thanks for the article

scott.driver
Level 12

Thank you for reading

graeme.brown
Level 11

On-Premise RULES!

scott.driver
Level 12

I‘m just going to guess that’s sarcasm. As with any decision, there are pro’s and con’s that should be weighed. Every situation is different and what’s right for one, may not be right for another. My intent was just to present thoughts that are not part of the hype madness, along with some pros and cons people may want to consider.

Have a great day

joepoutre
Level 12

Actually, we are all involved in the financial part of our business, so anything practical we can do to improve our company's bottom line is a benefit to us.

In theory, of course.    In reality, sometimes we make things less expensive and the benefits accrue elsewhere. 

scott.driver
Level 12

I completely agree Joe. Part of what I have been trying to highlight in several of my posts is that costs go well beyond just the financial outlay to purchase a solution. There are many things that go into the "financial" aspects of business, which we should all be conscientious of, which I think is what you're saying above.

david.botfield
Level 13

Thanks for the article.

scott.driver
Level 12

Thanks for reading along!

df112
Level 13

Thanks for one of the more rational approaches I've seen in a while.  Nearly every article I read is more like "of *course* you'll save money in the cloud and if you say otherwise you're an idiot".  Ain't necessarily so.  We're definitely in the keep it nearly forever category in terms of hardware (just turned off a couple of 10 y.o. Opteron servers last week) and have no requirement to stand stuff up in seconds.  The cloud is a lot less compelling in that scenario.  Sometimes it makes sense, and when it does we do it.  Other times it doesn't.

scott.driver
Level 12

DF112,

I agree with your assessment. Use the right tool for the right job, and evaluate the requirements not the hype.

Thanks for your kind words.

Jfrazier
Level 18

Some people/companies will and some won't.  It all depends on each situation.  Research is paramount to making the correct decision.

rschroeder
Level 21

One cloud-based solution that the medical industry is watching has to do with access to medical images and medical histories from anywhere by anyone who has purchased the rights and signed the agreements.

When I was born in the 1950's a hospital would make medical images and record medical procedures in someone's folder.  The images would be physical X-ray sheets, the documents would be typewritten and placed in a manila folder in a file cabinet or box.  It was not very portable, but it was pretty secure in that a person had to physically be present and hold it in their hand to access it.  It could be photographed or photocopied or physically stolen, or lost, or damaged in a flood, or burned up in a fire.  There was only one copy.  If you were out of your home area and you experienced a medical emergency, the doctors at a different hospital would have none of your medical history or a list of your allergies to medicines.  Their lack of knowledge about you could hurt you even as they tried to save your life.

In the early 2000's hospitals made the same images and written histories, but converted them to digital format.  They are stored in SAN drives with logical and physical redundancies for safety; your providers should always be able to access your medical information, barring ransomware or hostile intent.  But your medical emergency far from home might still have situations where a local doctor has no access to your medical files & allergies, depending on record incompatibilities between two health systems, or even depending on their allegiances.

Today there are several cloud-based solutions for storing & accessing your medical history.  Any health organization can purchase a membership in such a consortium, and can upload your medical images & history to highly available storage that can be accessed from anywhere by anyone who has purchased the access rights.  The storage is designed to be secure, and consortium members aren't able to "mine" other members' storage to try to steal clients.  Your care in a medical emergency thousands of miles from home is facilitated by this use of the cloud.  Providers can see your latest X-rays, CAT Scans, MRI's, and read your history of procedures and allergies and care.  They can avoid making mistakes with prescription medicines and not give you something that will cause an allergic reaction.

This cloud-based storage of medical records is big business, and multiple companies are trying to provide the service.  Their value grows as their membership expands.  Consequently these companies are competing fiercely with each other for your health system's business.

You can imagine how convenient it would be for all patients and providers if everyone's records were stored in the cloud, accessible by any provider from any location around the world.  Imagine:  you're hurt, perhaps unconscious, in another city--maybe even on another continent.  You have allergies to certain drugs, you've had some special procedures performed, maybe you have had implants or transplants, a pacemaker, metal pins holding bones together after an accident.  What will happen to you if you're treated without knowledge of these things?

The cloud, and the right staff & technology to access it and use its data, may save your life.

But that last line is quite a caveat.  If you're on a dream trip exploring the Peruvian Amazon and are involved in a severe accident, will the nearest hospital have a computer network, access to the Internet, software that can read digitized information--maybe even translate it to the local language?  Is that hospital already a member of the particular consortium that holds your medical information, or will they be denied access to it until they pay some fee?

Health care away from my high-tech environment, particularly in remote or underserved areas, is quite different than what I'm used to:  Exploring Healthcare in the Amazon Jungle

I'm predicting health care providers and cloud-based storage companies will get past that "members only" functionality, and will work with insurance companies instead of individual hospitals.  That way your information remains available to any provider anywhere, and the Consortium makes its money from the insurers.

May your cloud experiences be affordable, highly available, and positive ones!

Rick Schroeder

scott.driver
Level 12

It's really interesting Rick. It's been a number of years since I was involved with healthcare, but at that time my organization was trying to become one of these information exchanges. At that time (maybe ~10 years ago) there were several competing consortium's as you put it. The problem I saw from both a technologist and a user perspective, is that a- there's a pay to play mentality, b- you have to have enough data in the consortium to make it worthwhile, c- competing consortium's were ... well, competing.

It's unfortunate that it sounds like we're still in a similar state. I completely agree that once our healthcare system can get to the point of standards, and have a shared content medium, while other problems will arise, everyone should benefit.

Thanks for sharing your thoughts!!!

neoceasar
Level 11

Agreed, each situation is different depending on what a company wants to accomplish.

scott.driver
Level 12

And I think you distilled what I was trying to convey into one sentence.  LOL     Do your homework, consider requirements, choose "the right" solution.

Cheers!

Jfrazier
Level 18

that applies to any aspect of IT and life as well.  Some will get it and some won't

ScottRich
Level 12

Finally got back to reading this (started with part 2). Excellent explanation of 'Cloud' and what it means to go there. I plan to share this with some of our management types who seem to think cloud and virtual are cheap because you don't have to buy stuff, as in "we have a virtual environment so adding a server doesn't really cost us any more!" Thanks for the great article.

scott.driver
Level 12

If you're running at the scale required to bump into these sorts of limits, you're most likely already aware of what's going on. However, this is the second time in the last several weeks that I've heard mention of Azure having issues in their East Regions, putting something of a dent in the myth that cloud is instantly and infinitely scalable.

Microsoft Azure customers reporting hitting virtual machine limits in U.S. East regions | ZDNet

scott.driver
Level 12

Thanks for the kind works Scott. I hope that the information is helpful for you and your organization!

scott.driver
Level 12

I‘m just going to leave this here:

45AFF63D-1E43-49D4-92B1-331A4E6EF9F1.jpeg

network_defender
Level 14

Great article. Looking at this issue from a DoD perspective.

scott.driver
Level 12

OHHH interesting! Are you part of the JEDI contract or something altogether different?

Not matter what your role with DoD is, I’m guessing that you would have some really interesting insights due to the scale of the organization as well as the regulatory frameworks you have to operate within. If you have anything that you can share with us, i know I for one would be super intrigued to hear any thoughts from someone on the inside.

Thanks for reading!

hart4design
Level 9

It will be interesting to see how this pans out.

network_defender
Level 14

Our portion of the DoD is moving to AWS.  We are not on the JEDI contract, but it will affect us in getting both clouds to talk to each other for information sharing.  Bold new world.  At least life isn't boring!

scott.driver
Level 12

I hate boring! But too much excitement can be just as bad. I hope you get a chance to come back and share your experiences with us.

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