Most likely, your organization is not in the business of running data centers, yet a significant amount of time and money is spent doing just that. Amazon Web Services provides a way to acquire and use infrastructure on-demand, so that you pay only for what you consume. This puts more money back into the business, so that you can innovate more, expand faster, and be better positioned to take advantage of new opportunities.

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Andy Hindmarch
Public Sector, AWS
Cloud Economics – TCO 101

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Introduction
Why the economics of Cloud are different
Ways to purchase & optimise your environment
TCO Considerations
Next Steps
Agenda

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Introduction

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What Is (True) Cloud Computing?
The on-demand delivery of IT resources
over public or private networks with zero
up-front costs, no long-term contracts, and
pay-as-you-go pricing.
4

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Why are the Economics of Cloud Different?

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Comparing TCO isn’t easy
(But we’re going to try)
≠
Traditional Data Center
& Co-Location
AWS Cloud

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Traditional IT TCO components
Hardware – Server, Rack
Chassis PDUs, ToR
Switches (+Maintenance)
Software - OS,
Virtualization Licenses
(+Maintenance)
Facilities Cost
Hardware – Storage
Disks, SAN/FC Switches
Software - Backup
Network Hardware – LAN
Switches, Load Balancer
Bandwidth costs
Software – Network
Monitoring
Server Admin, Virtualization Admin, Storage Admin, Network Admin, Support Team
Diagram doesn’t include every cost item. E.g. software costs can include database, management, middle tier software costs.
Facilities cost can include costs associated with upgrades, maintenance, building security, taxes etc. IT labor costs can
include security admin and application admin costs.
Space Power Cooling
Project planning, Advisors, Legal, Contractors, Managed Services,
Training, Cost of capital
Business Value:
Cost of delays
Risk premium
Competitive abilities
Governance
Etc.
IT Labor Costs
Network Costs
Storage Costs
Server Costs
4
1
2
3
Extras5
Facilities Cost
Space Power Cooling
Facilities Cost
Space Power Cooling

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On-premises environment purchases are made with future
capacity in mind
Used
IT
Capaci
ty
Idle
Capaci
ty
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
On-Premises IT
Compute capacity
Total
Studies by Gartner, McKinsey and the Uptime
Institute have stated that typical data centers
are on average
less than 50% utilized
www.uptimeinstitute.org
anthesisgroup.com/wp-content/uploads/2014/08/Data-Center-Issue-Paper-final826.pdf
www.nytimes.com/2012/09/23/technology/data-centers-waste-vast-amounts-of-energy-belying-
industry-image.html

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Limited Value, Wasted $, Increasing Cost
Traditional Capacity Planning
Initial Fixed
Capacity
Utilization
Unused Capacity = Wasted $
Downtime, Lost Customers, Lost Revenue (Impossible to measure)
More Wasted $
Time

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The Economics of the Cloud are Compelling
Lost
opportunity
Infrastructure
cost $
Time
Large
capital
expenditure
Opportunity
cost
Predicted demand
Traditional hardware
Actual demand
Capacity flexibility on AWS
Key:

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Speed & flexibility of cloud allow for increased agility
and productivity
Operational CostsWorkforce Productivity Cost AvoidanceOperational ResilienceBusiness Agility
• Reduced Risk
Profile/Reduced
cost of Risk
Mitigation
• Regulatory
compliance needs
• Revenue & margin
improvements due
to reduced outages
• Reduced Time to
Market
• Increased
operational agility
(new market
penetration,
divestiture,
acquisition)
• Reduced cost &
increased Pace of
Experimentation
• Elimination of
hardware refresh
programs
• Elimination of
maintenance
programs
• Unit price of
Infrastructure
• Ability to match
supply & demand
• An elastic Cost Base
• A pathway to
optionality
• Transparency drives
a lean mindset
• Automation drives
maintenance
efficiencies
• Reduced cost of
planned and
unplanned outages
• Increased
Developer
Productivity

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Ways to purchase & optimise your environment
in the cloud

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Lower up-front costs and save more as your usage grows
13
1 2 3 4
Replace up-front
capital expense with
low variable cost
Economies of scale
allow us to continually
lower costs
Pricing-model choice
supports variable and
stable workloads
Save more money
as you expand
Average of 400 servers
replaced per customer
66 price reductions
since 2006
Purchasing options: Increase savings through:
• On-demand
• Reserved
• Spot
• Tiered pricing
• Volume discounts
• Custom pricing
Source: IDC Whitepaper, sponsored by Amazon,
“The Business Value of Amazon Web Services
Accelerates Over Time.”
July 2012

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Methods of procurement & consumption
On Demand Reserved Instances Spot
• Users that prefer the low cost
and flexibility of Amazon EC2
without any up-front payment
or long-term commitment
• Applications with short-term,
spikey, or unpredictable
workloads that cannot be
interrupted
• Applications being developed
or tested on Amazon EC2 for
the first time
• Applications with steady state
usage
• Applications that may require
reserved capacity
• Customers that can commit
to using EC2 over a 1 or 3
year term to reduce their total
computing costs
• Applications that have flexible
start and end times
• Applications that are only
feasible at very low compute
prices
• Users with urgent computing
needs for large amounts of
additional capacity

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TCO Considerations

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Initial questions to consider when exploring TCO
Capacity
Planning
1 How do you plan for capacity?
How many servers have you added in the past year? Anticipating next year?
Can you switch your hardware on and off and only pay for what is used?
Utilization
2 What is your average server utilization?
How much do you overprovision for peak load?
Operations
3 Will you run out of data center space some time in the future?
What was your last year power utility bill for the Data Center(s)?
Have you budgeted for both average and peak power requirements?
Optimization
4 Are you on AWS today?
Is your architecture cost-optimized (Auto Scaling, RIs, Spot, Instances turn on/off)?

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TCO example: VM Farm On-premises vs. AWS
- 1,000VMs using VMWare
- 1PB object storage
- 4vCPU 16G RAM machines
- Automatic mapping of instance sizes
- Accrue network, IT labour and power costs
- https://awstcocalculator.com

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TCO example: VM Farm On-premises vs. AWS

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The Four Pillars of Cost Optimization
Right Sizing Reserved
Instances
Increase
Elasticity
Measure,
Monitor, &
Improve

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Right Sizing
Right Sizing
• Selecting the cheapest instance available
while meeting performance requirements
• Looks at CPU, RAM, storage, and network
utilization to identify potential instances that
can be downsized
• Testing is inexpensive
Rule of thumb: Right size, then reserve.
(But if you’re in a pinch, reserve first).

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Reserved Instances
Step 1: RI Coverage
• Cover always on resources
Step 2: RI Utilization
• Leverage RI flexibility to increase utilization
Rule of thumb: Target 70-80% always on
coverage and 95% RI Utilization rate.
• Have the data first
• Consult AWS
• Use 3rd party tools
• Purchase monthly

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Increase Elasticity
Turn off non-production instances
• Look for dev/test, non-prod instances that are running
always-on and turn off
• automate, 3rd party tools
Auto scale Production
• Use Auto scaling to scale up and down based on
demand and usage (e.g. spikes)
• Smaller instances rather than fewer and larger
Rule of thumb: Shoot for 20-30% of EC2 instances
running on demand to be able to handle elasticity
needs.
Elasticity is using an instance when you need it, but turning it off when you don’t.

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Measure, Monitor, & Improve - Uncover the Cost
Optimization Opportunities
Automation is Key to Success at Scale
•Auto-tag resources
•Identify ‘always on’ Non Prod
•Identify instances to down-size
•Recommend RIs to purchase
•Re-evaluate AWS Service purpose
•Dashboard our status
•Report on savings

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Next Steps

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Resources
https://aws.amazon.com/getting-started/
http://aws.amazon.com/economics/
https://awstcocalculator.com
http://calculator.s3.amazonaws.com/index.html
:

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Introduction to your dedicated AWS Account Manager for;
- Guidance on getting started
- Identify a first workload to start testing
- Introduction to technical resources like Solutions
Architects and solution specialists
- Guidance on how to cost optimise that workload
- Training & or Partner introduction
Key next step action -

27. Thank you