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Cloud Computing Economics, Part One

The Economics of Cloud vs Physical Computing

Chris Fleck's Blog

The economics of Cloud Computing do point out a major Cloud advantage when it comes to short term or variable workloads. On the surface though it's apparent that Amazon's EC2, for example, is significantly more expensive if the set up is utilized 24x7x365, even a 40 hour week yields a slightly higher cost.

Below is a simple comparison of Amazon EC2 vs. purchasing a set of servers for development purposes ( I have added some additional costs and scenarios). This example also assumes the servers fit in existing space and either environment would be managed by existing staff.

On the surface it's apparent that EC2 is significantly more expensive if the set up is utilized 24x7x365, even a 40 hour week yields a slightly higher cost. So where is all the savings? What's all the hype about?

Purchase - on Premise
$ 15,000
Quad-Core Servers ( 5 x 3,000 each )
$ 750
1/2 Rack + Gigabit Switch
$ 15,750
Total Hardware cost
$ 5,800
Annual amortized cost, 5% over 3 years
$ 0
Assuming no incremental real estate cost
$ 2,000
Annual power & AC cost
$ 7,800
Total annual cost on premise
Purchase - at Colo
$ 8,000
Colo fee's; 1/2 Rack + power + bandwidth
$ 5,800
Annual amortized cost
$ 13,800
Total annual cost at Colo
$ 35,040
24x7x365 Amazon EC2
( $.80 per high CPU Server instance hour )
$ 8,320
40 hours x 52 weeks
$ 688
40 hours x 4.3 weeks

This simple example does point out that the Cloud is not always a more cost effective solution it really comes down to what is the particular use case and alternative costs. For example if there is no space available or the existing space has reached the power limits of the facility (a more common occurrence ).

That means that the likely scenario is finding a Co-lo facility to provide space power and bandwidth. Depending on location and bandwidth usage this could easily cost $8,000+ per year plus additional remote administration hardware and service fees, effectively increasing the annual cost of purchased equipment to near $ 14,000. Although this option is still less than Amazon if utilized 24x7x365, it now is significantly more than the cost of the 40 hour week at EC2 which may be reality for a development environment. And if you only need the setup for a month of dev or testing Amazon becomes a no brainier.. put on your credit card!

What both examples point out are the fact that there is single answer. In fact the right answer for many companies might be premise plus cloud. In order for this to work for a single workload however a seamless connection would be required, recognizing this has led to the Citrix Cloud Bridge based on our WANScaler acceleration technology. In fact, Citrix is in the unique position to be able to assemble the prerequisite technologies that make the C3 Citrix Cloud Center an optimized solution for many scenarios.

There are many other pros, cons and hidden costs of each option, I am interested to hear what the community has considered regarding Cloud economics and/or other factors.


More Stories By Chris Fleck

Chris Fleck is Vice President of Emerging Solutions at Citrix Systems. Chris started his career at IBM working across multiple engineering and product organizations leading to Business Unit Exec of the IBM Industrial Computer Group. As a pioneer of new technologies, Chris founded an IBM spin-off to commercialize the initial Server Blade products as CEO of OmniCluster Technologies. At Citrix Chris is responsible for Emerging Solutions. As part of the Citrix CTO Office he is also involved with or leading multiple strategic initiatives at the company. You can follow him on Twitter and his blog at

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Most Recent Comments
rosscooney 11/21/08 02:27:06 PM EST

Buying servers is capital intensive...and impossible for startups. Buying capacity from AWS is expensive in the long term, but for the startup phase it is very beneficial.

We provide an email filtering service to SMB's through a group of resellers and xSP partners. We released the service a year ago with only four 'real' servers in a datacenter in Newcastle-upon-Tyne. We plugged it into AWS in September last year and moved four of our ISP partners to the AWS network. Earlier this year we setup a partnership with Flexiscale to give us some backup power. We used these providers to 'bootstrap' our business into month-on-month cash positivity. We are now using that cash flow to buy our own servers. Due to a few strikes of good luck we now have a network of 50 servers located in Newcastle and Liverpool. Before buying the new servers we used cloud computing providers to run our network, now we use it for scale. Basically, we used cloud computing to bootstrap our business so that we could afford to transition to our own network. All this without VC funding.

Ross Cooney

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