You gonna buy a house, or rent one?
Yes, you can consider this as second EMI of Business Case @ Cloud series, that I started sometime back.
We all have faced this question - is it a good idea to buy a house or stay on rent or stay as paying-guest. It is a very simple question; however the answer is extremely difficult for one. Everyone will have done some homework and analysis to make a decision suitable to one’s needs. The key trade-offs are “luxury Vs liability”, “flexibility Vs stability” and “cost Vs savings”.
We will take this analogy to cloud and discuss the case for datacenters @ cloud and explore if “private clouds” will make sense to enterprises with some illustrative cost benefit analysis. We will also capture various trade-offs in the decision making process to understand when to apply what strategy.
Show me the money
The large enterprises need large datacenters - there are 3 options and there can be other optimized variants.
- On-premise: it is a traditional practice to use colocation center (“colo”) with a preferred partner
- Managed Hosting: it is picking-up the steam as SaaS becomes popular and more mature service offerings are available
- Cloud Hosting: it is somewhat new, with high cost savings potential
Let us talk the numbers now, once again, as I mentioned in my previous post, take the numbers with a pinch-of-salt as it does not represent a real customer situation.
Cost | Colocation Center | Managed Hosting | Cloud Hosting |
Capital Expenditure (CAPEX) | $600,000 | $0 | $0 |
Server Machines (50 Nos) | $250,000 | - | - |
Networking Equipments | $250,000 | - | - |
Software Licenses | $100,000 | - | - |
Operational Expenditure (OPEX) | $420,000 | $410,000 | $320,000 |
Bandwidth | $40,000 | $40,000 | $20,000 |
Staff Salaries | $210,000 | $70,000 | $100,000 |
Infrastructure Maintenance | $50,000 | - | - |
Power | $120,000 | - | - |
Service Fee | - | $300,000 | $200,000 |
Pay-per-Use Savings | - | - | -$50,000 |
Total Cost | $1,020,000 | $410,000 | $270,000 |
Let me just note-down the assumptions and resources I used for cost comparison.
- Server Machine $5,000 each
- AWS Simple Monthly Calculator
- Google App Engine Billing
- Managed Server Service Cost
- Bandwidth Cost
Does private cloud make sense to enterprises?
We need to first be clear about what is private cloud – is it something that an enterprise will by as “infrastructure” and manage and maintain it? To me it does not make real monetary sense at a first glance - enterprises will still have to spend on cloud hardware maintenance and also pay for the software licenses. If we have to add the cost of infrastructure maintenance and related support staff, the cost benefit illustrated above might just go-away completely. So what makes a case for the private cloud? Let us explore the thoughts, share yours.
In my opinion, there are two options – the cloud service providers should be able to provide “cloud infrastructure-on-lease” to address enterprise concern on security and data ownership that demands private cloud. It will be an agreement and negotiation that gives mutual benefits to both the parties. The other option for an enterprise is to consolidate all the IT hardware and create a virtualization wrapper on the infrastructure that will act as a “virtual private cloud” for an enterprise – it might facilitate cost & infrastructure utilization optimization.
What Next?
Yes, I promised a case for CRM @ Cloud, wait for it, it will come soon. Don’t forget to check our blog series on Make Money @ Cloud and Eyes on the Sky, Feet on the Ground, or subscribe this feed.
Comments
I thought this was an interesting article and the numbers you show are mostly inline with my own research in my endeavor to provide enterprise cloud computing services as a hybrid private community cloud.
I've also been writing some of my thinking about these same issues at my own blog, www.productionscale.com.
In general, I think that there is beginning to be some maturity and concensus as to the various cloud deployment models with the work of NIST, Jericho, and others.
Also, the realization for most that cloud computing is not a specific technology. It is much more an operational and architectural model emerging into broader use and understanding from many years of great work in various fields of computer science.
In my opinion, private clouds of different types make great sense. In particular when you consider security, compliance, and transparency issues related to enterprise utilization of such things.
Cheers,
Kent Langley
Posted by: Kent Langley | May 29, 2009 05:17 PM
Yes, Kent - private cloud does make sense, and thanks for quoating us on your blog - http://www.productionscale.com/.
The point is - should enterprise "buy" private cloud ? OR should they "lease" it ? OR should they "build" it in-house leveraging existing infrastructure? I tried to bring that perspective through a very basic illustration.
I also liked your proposal of hybrid private cloud - I also agree that - it is a "right" way to go - A real world case study for hybrid private cloud - with practical constraints and cost-benefit analysis would definitely be a billion dollar idea to publish.
You can also find these posts interesting - Business Case @ Cloud and Hands On: Building a Private Cloud using Open Source Solutions Part 1: Setting up Cloud Infrastructure using Eucalyptus Open Cloud Platform.
Posted by: Bhavin Jayantilal Raichura | May 30, 2009 07:19 AM
I came across another interesting read around Private Cloud:
http://www.computerworld.com/action/article.do?command=viewArticleBasic&taxonomyName=Networking+and+Internet&articleId=9133991&taxonomyId=16&pageNumber=1
This is where I re-iterate my point: You gonna buy this or rent one?
Posted by: Bhavin Jayantilal Raichura | June 10, 2009 04:07 AM