This document discusses how to build the business case for moving workloads to the AWS cloud by optimizing total cost of ownership (TCO). It provides tips on right-sizing instances, using reserved instances to reduce costs, increasing infrastructure elasticity, and continuously measuring and improving cloud usage to lower TCO over time. A case study example shows how one company was able to reduce their monthly EC2 costs by 33% through right-sizing instances, reserving capacity, and optimizing their architecture for cloud usage patterns and costs.

1. ©2015, Amazon Web Services, Inc. or its affiliates. All rights reserved
AWS Cloudonomics:
Realizing the Economic Case for the AWS Cloud
Ryan Roberts (ryanrobe@amazon.com)
Global Lead, AWS Business Practices
February 8, 2017

2. What to expect….
We will discuss the AWS approach for
building the business case for the cloud
and share tips from some of our most
innovative customers who are able to
successfully architect for cost optimization
in order to realize the economics of the
AWS Cloud.

3. What is TCO?
Definition: Comparative total cost of ownership analysis (acquisition
and operating costs) for running an infrastructure environment end-to-end
on-premises vs. on AWS.
Used for:
1) Comparing the costs of running an entire infrastructure environment or
specific workload on-premises or in a co-location facility vs. on AWS
2) Budgeting and building the business case for moving to AWS

4. Cloud Economics In A Single Chart
Achieving More With Less
Lost sales
Infrastructure
cost $
Tim
e
Large
capital
expenditure
Opportunity
cost
Predicted
demand
Traditional hardware
Actual demand
Automated virtualization
Key:

5. AWS Pricing Philosophy
More AWS
Usage
More
Infrastructure
Economies
of Scale
Lower
Infrastructure
Costs
Reduced
Prices
More
Customers Ecosystem
Global Footprint
New Features
New Services
Infrastructure
Innovation
We pass the savings along to our
customers in the form of low
prices and continuous reductions
59

6. How do customers lower their TCO with AWS?
1
“Average of 400
servers replaced per
customer”
Replace up-front
capital expense with
low variable cost
2
59 Price
Reductions
Economies of scale
allow AWS to
continually lower costs
3
Pricing model choice
to support variable &
stable workloads
4
Save more money as
you grow bigger
On-Demand
Reserved
Spot
Tiered Pricing
Volume
Discounts

7. So how do we do it?
≠

8. TCO = acquisition costs + operations costs
Hardware—server, rack
chassis PDUs, Tor switches
(+maintenance)
Software—OS,
virtualization licenses
(+maintenance)
Facilities cost
Hardware—storage disks,
SAN/FC switches
Storage admin costs
Network hardware—LAN
switches, load balancer
bandwidth costs
Network admin costs
Server admin virtualization admin4
The diagram doesn’t include every cost item. For example, software costs can include database,
management, and middle-tier software costs. Facilities cost can include costs associated with upgrades,
maintenance, building security, taxes, and so on. IT labor costs can include security admin and application
admin costs.
Space Power Cooling
Facilities cost
Space Power Cooling
Facilities cost
Space Power Cooling
Server costs
Storage costs
Network costs
IT labor costs
1
2
3
illustrative

9. Questions to explore your existing footprint…
Operations
Utilization
Capacity
Planning
Optimization
• 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?
• What is your average server utilization?
• How much do you overprovision for peak load?
• 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?
• Are you on AWS today?
• Is your architecture cost-optimized (Auto Scaling, RIs, Spot, Instances turn on/off)?
1
2
3
4

10. And, make sure to…
 Power/Cooling (compute, storage, shared network)
 Data Center Administration (procurement, design, build, operate, network, security
personnel)
 Rent/Real Estate (building deprecation, taxes)
 Software (OS, virtualization licensing & maintenance)
 RAW vs. USABLE storage capacity
 Storage Redundancy (RAID penalty, OS penalty)
 Storage Backup costs (tape, backup software)
 Bandwidth, Network Gear & Redundancy (routers, VPN, WAN, etc.)
Consider
Understand
 Procurement Time, Resource sitting on self
 Cost of Lost Customers
 RTO, RPO

11. Analysts have shown AWS reduces cost over the long term
Source: IDC, Quantifying the Business Value of Amazon Web Services (May, 2015)

12. Resources to get you started
AWS TCO Calculator
https://awstcocalculator.com
Case studies and research
http://aws.amazon.com/economics/

13. Lowering TCO Through cost optimization
On-
Premises
Lift & Shift Instance Right-
Sizing
Improved
Elasticity
Measure,
Monitor,
Improve
Optimized EC2 Storage
Optimization
Serverless
Architecture
Managed
Services
True AWS
Optimized
Traditional TCO Comparisons

14. So you’re feeling pretty good.

15. But maybe you’re spending more than you planned…
…Or maybe you’d just like to spend less

16. Cost optimization is…
going from…
to…
pay for what you use
pay for what you need

17. Key inputs to cost optimization on AWS
Cost
Optimized
on AWS
Appropriate
Pricing Plans
(e.g. RI, Spot)
Periodic
Review /
Instance
Resizing
Shutdown
Non-Prod
Instances and
EBS volumes
Gate Process
/ Architecture
Review
Governance
Showbacks /
Transparency
Behavior
Change /
Incentive
Alignment
Limit
Resource
Provisioning
Implement
Automation
Key:
Direct Input
Indirect Input

18. Where do you start?

19. The four pillars of cost optimization
Right-sizing Reserved
Instances
Increase
elasticity
Measure,
monitor, and
improve

20. Right-sizing
Right-sizing
• Selecting the cheapest instance available
while meeting performance requirements
• Looking at CPU, RAM, storage, and network
utilization to identify potential instances that
can be downsized
• Leveraging Amazon CloudWatch metrics and
setting up custom RAM metrics
Rule of thumb: Right size, then reserve.
(But if you’re in a pinch, reserve first.)

21. Reserved Instances
Commitment level
1 year
3 year
AWS services offering RIs
Amazon EC2
Amazon RDS
Amazon DynamoDB
Amazon Redshift
Amazon ElastiCache
* Dependent on specific AWS service, size/type, and region

22. Reserved Instances
Step 1: RI Coverage
• Cover always-on resources.
Step 2: RI Utilization
• Leverage RI flexibility to increase utilization.
• Merge and split RIs as needed.
Rule of thumb: Target 70–80% always-on
coverage and 95% RI utilization rate.

23. Increase elasticity
Turn off nonproduction instances
• Look for dev/test, nonproduction instances that
are running always-on and turn them off.
Autoscale production
• Use Auto Scaling to scale up and down based
on demand and usage (for example, spikes).
Rule of thumb: Shoot for 20–30% of Amazon EC2
instances running on demand to be able to
handle elasticity needs.

24. Using right-sizing and elasticity to lower cost
More smaller instances vs. fewer larger instances
29 m4.large @ $0.12 /hr
$2,505.60 / mo*
59 t2.medium @ $0.052/hr
$2,208.96 / mo*
*Assumes Linux instances in US-East at 720 hours per month

25. Features
• Spot fleets to maintain service
availability availability
• Spot block durations (1-6
hours) for workloads that must
run continuously
Commitment level
• None
Spot Instances

26. Keep it simple
50% of OD
75% of OD
25% of OD
You pay the market price at an 87% discount
…and Diversify

27. Use Cases
Disrupt by scaling with
cost-effective compute
Stateless Web Services,
Containerized
Applications
Cost-sensitive
business models

28. Strike a Balance
Finding balance between pricing options
Reserved
Instances
On Demand Spot

29. Consumption Model by Industry
Web Scale/Big Data Enterprise SaaS Company

30. Consumption Model by Industry
Onboarding Enterprise Gaming Company

31. Or by Workload…
Data Science
Dev Test Internal IT
New app development

32. Pay less per unit when you use more
Volume discounts on overall bill when usage hits certain thresholds
$0.030
$0.0295
$0.029
$0.0285
$0.028
$0.0275
<1 TB <50 TB 50-500 TB 500-1000 TB 1000-5000 TB >5000 TB
Storage (S3)
Tiered Pricing
Pricing as of June 2016

33. Cost optimization governance
(Remember the fourth pillar?)

34. Uncovering the cost optimization opportunities
1. Auto-tag resources.
2. Identify always-on nonprod.
3. Identify instances to downsize.
4. Recommend RIs to purchase.
5. Dashboard our status.
6. Report on savings.

35. AWS options

36. Reserved Instances and right-sizing options

37. Metrics & Targets
✔ ✔
✔ ✔
✘
✘
✘
✘
A company’s overall AWS Cost should be evaluated or framed in context of
what outcome it delivers.
𝑈𝑛𝑖𝑡 𝐶𝑜𝑠𝑡 =
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
𝐼𝑛𝑑𝑖𝑣𝑖𝑑𝑢𝑎𝑙 𝑜𝑟 𝐵𝑢𝑠𝑖𝑛𝑒𝑠𝑠 𝑀𝑒𝑡𝑟𝑖𝑐
Examples
• Unit cost per revenue generated
• Unit cost per product or business unit
• Unit cost per internal user
• Unit cost per customer or subscriber

38. Cycle of cost optimization
✔
✔
✔
✔✘
✘
✘
✘
$
$
$
$
$

39. Questions Finance May Bbe Asking
1. How much of our workloads are “steady state”?
2. How are we currently handling our elasticity needs?
3. Have we had a Well Architected review with AWS?
4. How much of our usage is covered by Reserved Instances?
5. What’s keeping us from reserving capacity?
6. Have we looked at “serverless computing”?
7. How can I be more involved in our process?

40. Help You Optimize: Credit Programs
1. Startup Migration
2. re:Think
3. Partner POCs

41. After Optimization: Private Pricing
1. Commit to Service (e.g. CDN, Storage)
• Usage based
• Unit price
2. Commit to AWS - EDP
• Flat discount for range of AWS services
• Increasing discount based on level of
AWS spend commitment
• 12 to 36 month commitment terms

42. Our teams can help with…
• Architecture reviews
• Solutions Architects
• Reserved instance analysis
• AWS Account Managers
• TCO comparative analysis
• AWS Cloud Economics Team
• EDP & growth plans
• AWS Business Practices Team

43. Cloudonomics

44. Putting it all together: case study

45. Challenge:
Minimizing unit costs
during a period of massive
growth.
A consistent measure of
CPU processing power
Elastic compute unit
(ECU)

46. The growth challenge
August 2014
August 2015
584 ECU
1,192 ECU
2x
YoY Compute Growth
33%
decrease in monthly
EC2 costs!

47. Solving the growth challenge

48. Step 1: Right-size and update instances
m1 on demand
$0.07 per ECU
c4 on demand
$0.02 per ECU

49. The impact of right-sizing
70% reduction
in unit cost

50. Step 2: Reserve

51. The impact of reservations
30% reduction
In unit cost

52. Putting it together
85% reduction
in unit cost!

53. Example: reasonable optimization dashboard