For most workloads, cloud costs less than half as much as traditional alternatives

In the cloud space it’s exceedingly difficult to find apples-to-apples comparisons, which is among other reasons why there is still a lot of confusion surrounding the true cost of cloud-based infrastructure solutions and when it makes economic sense to use them (or, when it doesn’t). Skyscape chief executive officer Phil Dawson told Business Cloud News that the savings can be quite significant when moving enterprise workloads over to the cloud, but in some cases the financial benefits aren’t as clear.

In a report recently published by Skyscape, a cloud service provider and consultancy, the company endeavoured to evaluate the cost gap between traditional on-premise or collocated implementations of infrastructure platforms and their cloud-based correlates.

The organisation compared costs over a period of three years for cloud-services offered at various impact levels: IL0, a compute platform with minimal security parameters, suitable for test and development for instance; IL2, a platform suitable for high-traffic web applications and certified to ISO 27001, or similar national security standards; and IL3, a very secure platform suitable for complex enterprise workloads.

Across the board, the cloud solution came out cheaper.

Assuming a big company wants to build out a test and dev environment that requires 22 virtual machines and about 1.6TB of storage, it would have to acquire three servers (with maintenance agreements, a storage array, network switches, OS licences (Skyscape assumed open source), virtualisation licenses, WAN bandwidth and datacentre colocation space – to an estimated cost of £92,442 (£69,700 up front, £22,752 in recurring costs over three years).

It’s cloud equivalent? Assuming the workload runs eight hours per day, five days per week, and the project runs about six weeks in total: £36,045. That’s a 61 per cent cheaper than the dedicated physical platform.

The cost of a dedicated solution for hosting a high-traffic web application came out to £613,000 (£442,000 up front, £171,000 recurring over three years), which includes the server, networking and storage hardware, SQL and virtualisation licenses, as well as bandwidth, colocation, monitoring and management, and an IL2 compliant WAN.

The same setup would cost £436,062 if hosted in a virtualised platform.

“Buyers provisioning in-house or dedicated solutions need to be able to accurately predict or be confident of the traffic or demand that their users – citizens, employees and other end-users – will place on the application, and exactly how this will vary over time.  Getting it wrong can mean resources are under-utilised or lead to a degradation in service,” said Phil Dawson, chief executive officer of Skyscape.

“Adopting a cloud solution removes the requirement to accurately predict workloads, as the capacity available can be scaled in line with demand.  Cloud solutions also offer consumption-based pricing, which means that organisations pay only for what is consumed, enabling significant cost savings,” he said.

Dawson told Business Cloud News that enterprises still need to manage workloads appropriately – shutting them down and spinning them up when needed; persistent applications can skew the cost model significantly, so it’s not always necessarily worth putting them in the cloud.

It’s also not necessarily very straightforward when assessing the costs and benefits, particularly when the public and private sector are compared: “Certainly for large enterprise organisations it may be easier or more straightforward to project or assess the savings than if you’re in the public sector, where you may be trying to understand what the value of getting your rural farm application out to a bunch of farmers more quickly might be,” he explained. “It doesn’t necessarily have revenue attached to it, but it does have a social benefit societal benefit.”

“We’re also looking at the infrastructure side of things, less than the SaaS side of things. That’s where there can be huge variation because the value of an application to each organisation is very different. If you take Salesforce, it’s about how much that application improves your sales,” he said.

There are situations where cloud isn’t necessarily cost-competitive over the long term. A cloud-based implementation of an ERP suite from SAP and Oracle for a typical large enterprise would only accrue 5 per cent savings when compared to a dedicated or on-premise version.

After four or five years, the on premise or dedicated version of those apps – at least given current licensing prices and infrastructure costs – seem more attractive.

Dawson explained that cloud-based ERP is geared towards offering a different level of business continuity. For instance, many providers have active-active architecture set up to ensure that if one facility goes down the other takes over seamlessly.

“That’s a different experience and therefore in your apples to apples comparison doesn’t really get picked out because of your comparator – having back-up infrastructure sitting there, waiting for an event to occur,” he said, adding that enterprises are becoming much more sophisticated at operating their workloads on cloud platforms.

“We want to educate and raise awareness of the benefits of cloud in certain scenarios – but more importantly we want to try and promote a debate because people will bring different perspectives to this, and hopefully that will make people consider cloud under a wide diversity of scenarios,” he concluded.