Cloud economics: Not really black and white..

While some of the interest in moving towards public cloud is based on sound economics, there is a small segment of this movement purely due to the “herd mentality”.

The slide on the right is from a Microsoft publication shows that larger networks may be less economical on the cloud (at least today).

Richard Farley, has been discussing this very topic for few months now. He observed that a medium sized organization which already has a decent IT infrastructure including a dedicated IT staff to support it has a significantly smaller overhead than what cloud vendors might make it look like.

Here is a small snippet from his blog. If you are not afraid to get dirty with numbers read the rest here.

Now, we know we need 300 virtual servers, each of which consumes 12.5% of a physical host.  This means we need a total of 37.5 physical hosts.  Our vendor tells us these servers can be had for $7k each including tax and delivery with the cabinet.  We can’t buy a half server, and want to have an extra server on hand in case one breaks.  This brings our total to 39 at a cost of $273k.  Adding in the cost of the cabinet, we’re up to $300k.

There are several non-capital costs we now have to factor in.  Your vendor will provide warranty, support and on-site hardware replacement service for the cabinet and servers for $15k per year.  Figure you will need to allocate around 5% of the time of one of your sys admins to deal with hardware issues (i.e., coordinating repairs with the vendor) at a cost of around $8k per year in salary and benefits.  Figure power and cooling for the cabinet will also cost $12k per year.  In total, your non-capital yearly costs add up to $35k.

One thing which posts doesn’t clearly articulate, is the fact that while long term infrastructure is cheaper to host in private cloud, its may still be more economical to use public cloud for short term resource intensive projects.