Is Public Cloud Really Cheaper? It Depends.

By Kent Christensen
8/25/2015

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Many companies are actively evaluating or trying public cloud services. This is especially true in the area of IaaS (Infrastructure as a Service). Their main rationale? While many look for advantages like easy access, they also feel they’ll gain dramatic cost savings often touted with going to ‘the Cloud.’

But, is this type of cost savings always a given? Based on input from clients, the answer is oftentimes “No.” In fact, we find many of these companies can even end up spending several hundred thousand dollars more in a public cloud than they would have in their own private cloud.

Don’t get me wrong. Companies can achieve excellent cost savings with public cloud services like Amazon Web Services (AWS), Google Compute, Microsoft Azure or VMware vCloud Air. The trick is knowing the best use case for public vs. private cloud. It also has a lot to do with avoiding a healthy list of ‘gotchas’ that can quickly derail potential public cloud cost benefits.

There appears to be a tipping point at which private clouds make more sense for organizations vs. going the public route. The trouble is that each organization’s potential tipping point may be different. You certainly don’t want to discover your own tipping point only after committing to public cloud services and receiving a few unexpected, large monthly bills.

When Private Clouds Are Cheaper

When you contrast public cloud services against the use of an enterprise-level private cloud, do private cloud costs go up? In many cases, they actually go down.

Datalink ran several comparisons between using a managed private cloud vs. using AWS or some other public cloud. Such comparisons assumed the private cloud was both architected correctly, running efficiently, and that it was successfully provisioned (right-sized) for the specific customer workloads and application needs.

The result? For a client needing to run 800 virtual instances, the annual cost of a private cloud came to below $400,000 vs. somewhere between $800,000 and $1.2 million for public cloud services. The other hidden benefit? You also got more with the lower private cloud price-tag: More monitoring, more built-in, efficient management of storage and compute resources, as well as built-in data protection and restore functionality.

In fact, Datalink’s overall analyses found the cost of an efficient private cloud was often less than 50% of the cost of public cloud services.

Use Cases for Public vs. Private Cloud

In general, we found certain enterprise IT environments and workloads more a fit for either public or private cloud. While not an exhaustive list, the following offers some guidance.

Good candidates for private cloud IaaS:

- Large amounts of applications

- 24×7 applications or those with high transaction volumes

- Large volumes of virtual instances in operation (several hundred to several thousand)

- Database systems, POS systems, web sites, email or SharePoint environments

- Environments that have higher requirements associated with QoS, compliance, security, or data protection

Good candidates for public cloud IaaS:

- Bursty or unpredictable workloads

- Smaller anticipated numbers of virtual instances in operation

- Short-term or experimental application needs (examples: idea incubators, “fail-fast” efforts, such as short-term development or QA efforts that allow for fast spin-up of resources followed by fast spin-down and reuse)

- Workloads that don’t require a lot of extra bells & whistles (for example, they don’t require better QoS for storage or compute resources, or greater compliance features, better data protection, better security, or higher performance and availability)

- Workloads or applications with relatively low transaction volumes

Going Public? Watch for Unexpected Charges.

It’s not that public cloud vendors are trying to mislead organizations when it comes to what they charge for their services. It’s just the devil is often in the details. Organizations new to public cloud IaaS can run afoul of some relatively hidden, extra charges.

Some things to watch for:

- Extra cost for premium services (i.e., higher availability, faster tiers of storage or compute, etc.)

- Reserved vs. on-demand pricing: Reserved pricing can cost significantly less per gigabyte, but it requires you to: 1) Right-size the amount you need up-front; and, 2) Sign a long-term contract. If you overprovision or want to pay less, it’ll cost you. While you can expand your reserved allocation, we have found many organizations spend lots of extra management time managing their capacity allocations.

- Extra cost for some REST-based transactions, especially if you do a lot of them.

- Costs (bandwidth and otherwise) to transfer your data in or out of the cloud. (Believe it or not, public cloud vendors may charge you plenty to move a large volume of your data out.)

- Penalties to get out. Breaking a cloud contract may be a lot more expensive than breaking a long-term cell phone contract.

Public or Private? Why Not Both!

In the end, I believe the majority of enterprise companies will work toward a hybrid cloud model: Taking and using the best of both public and private cloud services.

Your mix might be 80% private, 20% public or some other combination. Both have merit. This is when a good assessment of your organization can help compare the numbers and give you the best tipping point between the two cloud models.

Kent Christensen is Datalink’s cloud and virtualization practice director. He routinely consults with customers regarding strategies and technologies associated with storage consolidation, virtualization and cloud computing.