How Cloud Computing Affects Business Financials

By now, most people know the benefits of the cloud – elasticity, flexibility, scalability, on-demand resources. But how does moving from traditional on-premise IT infrastructure to the cloud affect your business financials? For a good overview, check out “The Financial Impact of Cloud.”

Today is the Day – Cloud Cost

Cloud has been positioned as the panacea for all of the ills in the world.  The hype often leaves experienced IT professionals skeptical of the benefits of leveraging public clouds.  The most common objection to public cloud I hear is, “Wait until you get your first bill from (public cloud).”    I can understand the fear and consternation of suddenly having a huge monthly bill that no one budgeted. However, there are great 3rd party tools available that allow you to forecast and track your budget and usage, like 2W Insight, which make that uncomfortable situation avoidable.

With the recent price cuts by Amazon Web Services, Microsoft and Google, the TCO argument from the traditional hardware manufacturers is losing steam.  When is the last time any major hardware vendor cut its prices to its customers by 40-60% overnight? There is no better time to begin evaluating and leveraging the cloud, and a great place to start is with a TCO analysis.

2nd Watch has a services practice that can assist your organization in building an accurate monthly forecast of your estimated cloud costs while also providing a full TCO analysis.

-Matt Whitney, Cloud Sales Executive

Getting the Most Bang for your AWS Buck

Cloud computing continues to redefine itself as more customers begin their “Journey to the cloud.” There are many value propositions between different cloud providers, including, but are not limited to; agility, cost savings, time to market, increased security, flexibility, elasticity, economies of scale, a more effective support model, and the list continues.

As we start to understand the cloud provider landscape and take a snapshot into who is going to be the market leaders in the future, it is easy to see that Amazon Web Service (AWS) will be amongst that leader board. AWS is not only defining the IT infrastructure as a Service market, but it is also changing the consumption model for IT.

Due to the drastic changes in the procurement process of infrastructure, more business level executives (CFO, COO, CEO) are being pulled into the strategic decision making process of acquiring infrastructure as a service. For those executives that are not familiar with cloud services, I would like to offer a few tips that will not only support your overall corporate goals, but will allow you to make informed decisions in this highly evolving landscape of cloud computing.

  • Train yourself on the new model – Changing your company’s IT spend from a capital expenditure model to an operational model can be challenging. Consult with your AWS account manager on best practices. Discuss your goals with a Premier Partner within AWS’ ecosystem. Converse freely within your company to understand how you can address potential roadblocks before they happen. The procurement department and the finance teams within your organization will have great insight on how to help with this process.
  • Be cautious of jumping in with two feet – Many organizations are starting their journey with a hybrid model (on-premise + cloud). Test/DEV, disaster recovery, or non-production applications are all great candidates for moving to the cloud. Your ERP system and your mission critical applications may still have some lifecycle on their existing infrastructure and should remain on-premise until an evolutionary plan can be developed. Start small, think big and enable your staff to learn the technology, while still supporting your organization’s goals and business objectives.
  • Leverage the free tier – AWS offers a free usage tier and has no restrictions on your particular use-case. Spin up a new application, train your engineers on the new platform, or simply an existing application. The choices are yours to make, and it will not affect your bottom line.
  • Reserve Instances – For the applications that are running in a steady state or have a consistent operating floor, purchase reversed capacity. This will immediately give you cost efficiency between 40%-70% off your on-demand billing.
  • Get rid of excess capacity – Many organizations are accustomed to procuring IT infrastructure that has been over provisioned to meet the demand of peaks and spikes in their business. With cloud computing, you do not need to allocate excess capacity. With the proper architecture, it will be waiting for you when you need it. Optimize your environment(s) and leverage one of the grea advantages of cloud computing.
  • Tiered Pricing – For heavy users of cloud services, AWS offers tiered pricing to customers that consume web services up to certain thresholds. Review these tiers and forecast your roadmap to meet these levels before reporting deadlines (fiscal year ends).

If you follow these guidelines, your business will be sure to reach cost efficiency in the cloud.

-Blake Diers, Alliance Manager

AWS Lowers Cloud Computing Costs AGAIN

Last week, AWS announced their 42nd price reduction since 2008. This significant cut impacts many of their most popular services including EC2, S3, EMR, RDS and ElastiCache. These savings range from 10% to 65%, depending on the service you use.  As you can see from the example below, this customer scenario results in savings of almost $150,000 annually, which represents a 36% savings on these services!!!

This major move not only helps existing AWS users but makes the value proposition of shifting from on-premise to the AWS cloud even greater.  If you are not on AWS now, contact us to learn how we can help you take advantage of this new pricing and everything AWS has to offer.

As an AWS Premier Consulting Partner, our mission is to get you migrated to and running efficiently in the Amazon Web Services (AWS) cloud. The journey to get into the AWS cloud can be complicated, but we’ll guide you along the way and take it from there, so you can concentrate on running your business rather than your IT infrastructure.

2nd Watch provides:

  • Fast and Flawless enterprise grade cloud migration
  • Cloud IT Operations Management that goes beyond basic infrastructure management
  • Cloud cost/usage tracking and analytics that helps you control and allocate costs across your enterprise

Cloud Myth Busters

Yes, I know, everyone is tired of hearing about the Cloud. It seems like talk about the cloud happens all day, every day, and you know that it’s hit the mainstream when your mom asks you about it. The reality is that we’re still so early in “The Journey” (yes, we call it that because it truly is one.) that it can be impossible to distill the tremendous amount of noise that exists around the topic. Let’s spend a few precious moments identifying the cloud myths that are swirling about and try to myth bust a bit.

LegacyI have too much invested in my legacy systems, tools and processes that makes moving to the cloud too hard or just not worth it.

That’s partly true. Many companies have a lot of legacy systems and infrastructure out there. So much so that it clouds (no pun intended) their view on what’s possible. It’s like quicksand; the more time and money invested in legacy systems and architectures, the deeper and deeper you get, and it just seems impossible to get out. There is a way out though, and the first step forward is actually to take a step back and understand where you are today. From there, we’d suggest taking stock of what’s in your environment and seeing what’s ready to move to the cloud.

Security – It’s not secure. I’ll be sharing my data with everyone else.

That’s absolutely not true. The public cloud is extremely secure. These environments have been built to adhere to the most stringent security standards on the planet. Cloud providers take an in depth approach, going above and beyond to ensure that security permeates throughout the environment.

http://aws.amazon.com/security/

Agility – What am I really gaining? There can’t really be as much benefit as people are saying.

When we talk to any business person, lack of agility is typically their number one challenge. Traditional legacy, or even co-location infrastructure, is designed and built so that it doesn’t allow for the flexibility companies need in the constantly changing world. The need to continually evolve and the ability to “fail fast” are so important to businesses today, and the cloud enables you to do just that. You can literally create a global infrastructure in a matter of minutes that runs only when you need it. The benefits are dizzying.

Cost – I hear that it will actually cost me more to run in the cloud.

There are tremendous economies of scale to be gained by building out the massive footprint that the existing public cloud providers have built. It’s enabled them to get such a head start that it’s downright unbelievalbe what you can do today at a fraction of the cost of doing it in a traditional IT world. There are a number of TCO calculators out there that will show you the cost of running infrastructure on-prem vs in the cloud. Take a look at the calculator we built for AWS and see for yourself by plugging in your own numbers.

Best of Breed – I can use any cloud provider. They’re all the same.

There is an entire body of knowledge dedicated to the cloud landscape, how mature each company’s offerings are and where they fit in the overall landscape. I am a firm believer that you build your company to be as agile as possible, trying to eliminate brittle and hard linkages. Please check out the following link for an independent analyst’s view of today’s cloud landscape.

See what Gartner is Saying about the Cloud

Org Structure – I can use cloud as I see fit and keep things the way they’ve normally been internally.

True innovation is happening here. The industry is attracting the absolute best and brigh talent, and the pace of innovation will only accelerate. I’m not saying you need to stay ahead of it. The goal is to keep pace and not fall behind. We can help you do that!

-Mike Triolo, General Manager – Eastern US

 

Elasticity: Matching Capacity to Demand

According to IDC, a typical server utilizes an average of 15% of its capacity. That means 85% of a company’s capital investment can be categorized as waste. While virtualization can increase server capacity to as high as 80%, the company is still faced with 20% waste under the best case scenario. The situation gets worse when companies have to forecast demand for specific periods; e.g., the holiday season in December. If they buy too much capacity, they overspend and create waste. If they buy too little, they create customer experience and satisfaction issues.

The elasticity of Amazon Web Services (AWS) removes the need to forecast demand and buy capacity up-front. Companies can scale their infrastructure up and down as needed to match capacity to demand. Common use cases include: a) fast growth (new projects, startups); b) on and off (occasionally need capacity); c) predictable peaks (specific demand at specific times); and d) unpredictable peaks (demand exceeds capacity). Use the elasticity of AWS to eliminate waste and reduce costs over traditional IT, while providing better experiences and performance to users.

-Josh Lowry, General Manager Western U.S.

 

Cloud Economics Realized

There is a tremendous amount of buzz right now about Cloud Computing across many different areas of technology and many different industries . It is literally turning the business world on its head, creating opportunities to transform businesses of any size, eliminating traditional barriers of entry. While the promises of Cloud Computing are often highlighted – i.e. Cost Savings, Agility, Going Global, Elasticity, Ability to Innovate Quickly – what I’m finding is that putting pen to paper on the true Economic Advantages is sometimes overlooked. When it really comes down to it there are amazing economic advantages  when you adopt Cloud Computing for your business, and when quantified over time those advantages are compounded. It’s not just the shift from Capital Expense to Operating Expense, which in and of itself can be substantial, but the long term changes to your business will be exponential. For an example of how the cloud can affect your personal business economics, try the TCO Calculator to compare the cost of your current infrastructure to hosting on AWS.

The pace of adoption is truly dizzying across industries and market segments, and the amazing thing is we’ve just scratched the surface.

Amazon is clearly dominating in the Infrastructure Space with AWS while  Microsoft continues to lead in Productivity with their Office 365 offering. Check out the articles here as 2 examples:

http://media.amazonwebservices.com/idc_aws_business_value_report_2012.pdf

http://download.microsoft.com/documents/hk/office365/TEI_of_Office_365_midmarket.pdf

-Mike Triolo, General Manager – East

AWS Price Drops: More than Just a Sweet TCO Treat

Last week, AWS announced its 26th price drop, which may have you wondering what this trend really means long-term. In the short term, it means that Amazon EC2 customers with Linux or UNIX reserved instances will see their prices decrease by up to 27%. And this is hardly the only AWS price reduction we’ve seen recently. In early February, Amazon dropped its data transfer pricing significantly across nine AWS regions lowering the cost of data transfer between regions from 26% up to 83% depending on location. February also saw AWS reduce the price of deploying a relational database with automated failover from between 15% and 32%. Wow, that’s a lot of cost cutting!

But while these announcements are great by themselves, it’s important to know that price drops aren’t just a market trend. Price reductions over time are part of what makes cloud computing so attractive, and they’re also why cloud TCO is so revolutionary and compelling. Our customers understand that the cloud will bring them a lower overall TCO, but most are happily surprised when it turns out they were only looking at those savings from one perspective. Cloud TCO is so fantastic because it’s multifaceted. You can save money in so many ways.

First and foremost is the basic cost model. Today you’re buying infrastructure in big boxes and paying for everything up front no matter how much you actually use. CPU cycles, storage foot print, even facilities charges, these are all fixed costs in the current model no matter the utilization. But the cloud lets you access those resources by the hour. You’re paying for infrastructure only when you use it, and you can stop paying as soon as you’re done. That’s the cloud’s number 1 differentiator when it comes to infrastructure usage, and from a TCO perspective, that’s huge all by itself.

But it’s even more significant when you consider that the cloud also brings more freedom and agility to your business. With in-house infrastructure, if you need to add extra server capacity, you’re buying X number of new servers, namely however many you need to service peak demand. Period. Then you’re waiting for them to arrive and get installed and configured. Again, period.  That’s pretty much it. But in the cloud, (1) you’re paying for those servers only when you use them, (2) you can use them immediately and from any location, and (3), you’re paying only what the cloud provider needs to charge based on the overall resources at its disposal.

Number 2 means a big uptick in your ability to respond quickly to new needs or opportunities, and that always means more money. Number 3 means pricing based on economies of scale: The bigger a provider’s cloud, the lower your price should be. This is the root of why cloud price decreases aren’t a trend, they’re simply a part of cloud computing. It’s the nature of a cloud to grow and refine its services, and that process will simultaneously bring down customer cost for a couple of reasons.

For one, growth means customers get to take advantage of economies of scale when it comes to purchasing and using IT infrastructure. As clouds go, AWS is a behemoth! During his keynote at the recent Amazon re: Invent 2012 conference, Andrew Jassy, senior VP for AWS, remarked that every day AWS is adding enough new infrastructure to run all of Amazon.com circa 2003 – and Amazon was already a $5 billion company then! That’s massive in terms of economies of scale. Even large companies have trouble competing with that kind of volume; but every AWS customer can leverage that scale immediately and will see it lower their TCO over time.

Size also separates the cloud’s business model from that of traditional IT.  Because of its size, AWS can function in a high-volume, low-margin model, which is something traditional IT infrastructure providers just can’t do. Network hardware, servers, management, datacenter facilities, these things all work in a fixed cost model if you’re buying and running them in-house. Only the cloud lets you harness them on a pay-as-you-go basis and with complete flexibility to use only what you need, when you need it, and from where you need it. The more infrastructure a cloud provider has and the more sophisticated that infrastructure, the less they need to charge their customers to use it.

For AWS customers, you’re paying less as you go all the time. AWS has been consistently dropping its prices as soon as it can afford to do so. That’s how clouds stay competitive. We tell our customers to expect a 12.5% price decrease per year when using AWS and so far, we’ve been right. Track these cost drops back for the last several years across AWS, Azure, Google and other cloud providers, and it’s undeniable that the cost of cloud computing has gone down dramatically over time. For cloud services to be competitive not just against traditional infrastructure but also against each other, increasing infrastructure sophistication and keeping costs at a minimum is the only way to succeed. And AWS is succeeding in a big way.

If you haven’t tried the AWS TCO Calculator yet, it’s available online @ http://aws.amazon.com/tco-calculator.

-Jeff Aden, President