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Breaking Down the Economics and TCO of Migrating to AWS


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This session is for anyone interested in understanding the financial costs associated with migrating workloads to AWS. By presenting real cases from AWS Professional Services and directly from a customer, we explore how to measure value, improve the economics of a migration project, and manage migration costs and expectations through large-scale IT transformations. We’ll also look at automation tooling that can further assist and accelerate the migration process.

Published in: Technology
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Breaking Down the Economics and TCO of Migrating to AWS

  1. 1. © 2016, Amazon Web Services, Inc. or its Affiliates. All rights reserved. The Economics and TCO of Migrating to AWS Strategies to Quantify TCO and Optimize Costs James Macedonio August 23rd, 2016
  2. 2. What to expect… We will introduce our approach for building a business case for moving to the cloud and share tips on how to successfully architect for cost optimization in order to realize the best economic benefit of the AWS Cloud
  3. 3. 2/3 Roughly two-thirds of IT budgets go toward keeping the lights on 66% of CEOs believe security risk has increased in the last 6 months and 66% believe their risk management capability is falling behind 15 years The average lifespan of an S&P company―— dropped from 67 years in the 1920s to 15 years today
  4. 4. How this affects you You’re left without the necessary resources to pursue critical business initiatives required to maintain a competitive advantage Your traditional IT model lacks the agility you need to keep pace with innovative startups Insufficient security, compliance and availability can hamper your ability to compete and open the door to events that can cripple your enterprise
  5. 5. Hotels Storage Insurance Grocery delivery This is something “born in the cloud” companies have already discovered Devices Disruption is much easier today
  6. 6. Responding requires a new model Focus on differentiating your company Innovate at start-up like speed Reduce risk
  7. 7. What sets AWS apart? Building and managing in the cloud since 2006 50+ services to support any cloud workload History of rapid, customer-driven releases 13 regions, 35 Availability Zones, 56 edge locations Over 50 proactive price reductions to date Thousands of partners; 2,300+ Marketplace products Experience Service breadth and depth Pace of innovation Global footprint Pricing philosophy Ecosystem
  8. 8. Let’s dive deep on costs
  9. 9. Benefits of elastic and pay-per-use infrastructure Unable to Serve Customers Infrastructure Cost $ Time Large Capital Expenditure Opportunity Cost Predicted Demand Traditional Hardware Actual Demand Automated Virtualization
  10. 10. A couple of examples
  11. 11. Upgrades are your responsibility Upgrades happen automatically On-premises infrastructure VPC support With AWS, service upgrades occur automatically AWS
  12. 12. Managed services eliminate many operational tasks Do-it-yourself MySQL replication Potentially ~100+ manual steps Set up primary and standby instances Set up identical volumes Create synchronous replication Create and manage DNS entries Detect instance failure conditions Detect network failure conditions Detect storage failure conditions Decide when to fail over…. Re-establish primary secondary connections Amazon RDS Multi-AZ High availability with a mouse click
  13. 13. Analysts have shown AWS reduces costs over long term Source: IDC, Quantifying the Business Value of Amazon Web Services (May, 2015)
  14. 14. The value of using AWS accelerates over time Source: IDC Business Value of AWS Accelerates over time According to IDC, this relationship between length of time using AWS and return is due to customers leveraging the more optimized environment to generate more applications along a learning curve $1 investment in AWS $8.40 in benefits At 60 months of using AWS ~8x $3.50 in benefits $1 investment in AWS At 36 months of using AWS ~3x
  15. 15. In the beginning . . . …there was TCO
  16. 16. 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
  17. 17. Comparing TCO is not easy ≠
  18. 18. TCO the way clients typically see it Diagram doesn’t include every cost item. For example, software costs can include database, management, 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. Hardware—Server, (+Maintenance) Software—OS, Virtualization Licenses (+Maintenance) Hardware—Storage Disks Network Hardware—LAN Switches, Load Balancer Bandwidth Costs Server Admin Virtualization Admin 1 2 3 4 Server Costs Storage Costs Network Costs IT Labor Costs
  19. 19. TCO the way it is = acquisition + operational costs Diagram doesn’t include every cost item. For example, software costs can include database, management, 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. Hardware—Server, Rack Chassis PDUs, ToR Switches (+Maintenance) Hardware—Storage Disks, SAN/FC Switches Network Hardware—LAN Switches, Load Balancer Bandwidth Costs Server Admin Virtualization Admin 1 2 3 4 Server Costs Storage Costs Network Costs IT Labor Costs Software—OS, Virtualization Licenses (+Maintenance) Storage Admin Costs Network Admin Costs Facilities Cost Space Power Cooling Facilities Cost Space Power Cooling Facilities Cost Space Power Cooling
  20. 20. When Performing a TCO analysis • Build the TCO comparison collaboratively with the customer in multiple iterations, take the “No surprises” approach • Make sure you have the right stakeholders in the room to discuss TCO (Finance, Procurement, IT support, Engineering) • Avoid Comparing a duplicate of customer’s on-premise environment – problematic apples-to-apples comparisons of machines • Assign cost/value to non-tangibles such as agility, opportunity costs
  21. 21. So you’re feeling pretty good.
  22. 22. Until your CFO shows up with the bill.
  23. 23. Cost optimization is… going from… to… pay for what you use pay for what you need
  24. 24. The four pillars of cost optimization Right sizing Reserved Instances Increase elasticity Measure, monitor, and improve
  25. 25. 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 • Leverage Amazon CloudWatch metrics; set up custom RAM metric Rule of thumb: Right size, then reserve. (But if you’re in a pinch, reserve first).
  26. 26. 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 AWS Region
  27. 27. 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.
  28. 28. Increase elasticity Turn off nonproduction instances • Look for dev/test, nonproduction instances that are running always-on and turn off Autoscale production • Use Auto Scaling to scale up and down based on demand and usage (that is, spikes) Rule of thumb: Shoot for 20–30% of EC2 instances running on demand to be able to handle elasticity needs
  29. 29. 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 Using right sizing and elasticity to lower cost More smaller instances vs. less larger instances
  30. 30. • Be Fault Tolerant • Workloads should be Stateless • Loosely Coupled workloads preferred • If possible, deploy to Multiple AZs • Instance Flexibility is king • Take advantage of the 2 minutes warning • There is always Spot capacity available Use Spot to Increase Elasticity Savings Save up to 90% compared to On-Demand What could you do with a 10,000 core data center that costs $100 per hour, with one click?
  31. 31. Novartis, Cycle Computing & AWS Spot Instances Goal: Screen 10 million compounds against a common cancer target Estimated on-prem costs: $40M Estimated computational time: 39 Years
  32. 32. Solution: Use 10,600 AWS Spot Instances Outcome: 3 promising compounds identified Cost: $4,232 Time: 9 Hours Novartis, Cycle Computing & AWS Spot Instances
  33. 33. Cost optimization governance (Remember the fourth pillar?) Continuous Measuring, monitoring, and improving
  34. 34. AWS options
  35. 35. Partner Ecosystem
  36. 36. What about the cost of migration?
  37. 37. The Migration Bubble – Components Planning and Assessment Migration Tools Consulting Partners Internal Training Duplicate Environments Lease Penalties
  38. 38. The Migration Bubble
  39. 39. AWS PS Application Migration Level of Effort Very Low Basic workload Current/supported OS on AWS Known / documented environment No database Projected to migrate with basic tools Few dependencies Scheduled outage is OK Low Basic workload Partially documented components No database May require re-platforming (i.e. OS) Scheduled outage is OK Medium Contains multiple components Additional effort to document components No database May require re-platforming (i.e. OS change / upgrade) Outage with advance planning Business impact possible for production servers High Multiple components including database System may include greater than five disks Limited downtime permitted Production servers likely to impact business if unavailable for an extended period of time Very High Multiple components including database Complex system configuration (e.g. numerous disks) Contains several dependencies Limited to No acceptable downtime Requires advanced detailed assessment and planning High-touch migration 2 – 4 hours 4 – 6 hours 6 – 8 hours 10 – 14 hours 20 – 24 hours VM Conversion Host Cloning VM Conversion Host Cloning Live Migration App Containerization Live Migration App Containerization MigrationMethod Live Migration Host Cloning
  40. 40. Let’s do a sample Total Cost of Migration (TCM) exercise…
  41. 41. Cost Model is based on a Enterprise Migration of 469 workloads of varying complexities. Mean Migration Effort Across Hosts: 5.66 hours per host Sample Migration Cost Model Total Migration Effort Across 469 Hosts 88 205 55 109 12 0 50 100 150 200 250 Very Low Low Medium High Very High 2 4 6 10 20 Hours
  42. 42. $1202 per server (average) $153 $849 $200 2656 hours @$150/hr Avg 250 hours @$287.50 Avg Total Cost of Migration = $563,738 Average Cost To Migrate Each Server
  43. 43. Determining the Migration Bubble Payback Period (i.e. Breakeven) On Prem (3 yr) AWS (3 yr) Compute $1,720,061 $698,858 Storage $774,800 $245,353 Network $367,659 $37,104 IT Labor $675,360 $550,240 AWS Support $0 $98,131 Total $3,537,880 $1,629,686 $636,064 Yearly Savings One Time Migration Cost: $563,738 Breakeven: 10.6 Months
  44. 44. In summary: With AWS, you can more easily...
  45. 45. Move quickly
  46. 46. Hit your deadlines
  47. 47. Have more time to focus on what differentiates your business and new innovative ideas
  48. 48. With AWS, you have fewer long and large projects
  49. 49. Long and large projects • More likely to exceed budget • More likely to run late • More likely to fail to deliver full value
  50. 50. Is there any truth behind this? Based on research from McKinsey Consulting – Projects over $15m $66 billion in cost overruns in 5,400 IT projects How much can your customer save? Reduce risks
  51. 51. 45% of the project over $15m exceed its budget Reduce risks
  52. 52. 7% over time and deliver half the predicted Reduce risks
  53. 53. Each additional year in a project boosts the likelihood of missing targets by 15% Reduce risks
  54. 54. Business Agility The AWS Platform can act as a catalyst to transform the business Quality of Service Cost • Infrastructure Savings • Opportunity to re- evaluate existing outsourcing deals • Significant Reduction in Fixed IT Overhead • Increased release cycles • Reduced outages and service support overhead • Increased security and resiliency • Common global platform • Accurate Application Portfolio and Financial management • Architectural framework for Innovation • Elimination of legacy bottlenecks • Reduce the cost of failure and an increase in the pace of experimentation
  55. 55. Experiment and lower risks
  56. 56. Innovate by increasing the ability to “fail fast” 20 new projects 10 2 IT project funnel Increase the number of new projects in the funnel Increase the speed by which projects move through the funnel Decrease the downside impacts of project “failures” (shut ’em down quick) Keep costs low for the successes
  57. 57. Putting it all together
  58. 58. What to do next?
  59. 59. Cloud center of excellence
  60. 60. AWS’s 13 regions, 35 Availability Zones, 50+ services, and hundreds of innovations can help you. Leverage AWS global footprint
  61. 61. So this will result in Lower costs Increased agility The ability to scale based on market needs The ability to innovate around your unique value The ability to leverage what you already own
  62. 62. The AWS Partner Network (APN) • The APN is the global partner program for AWS focused on helping members connect to customers and build a successful AWS-based business • Thriving ecosystem comprised of tens of thousands of Consulting and Technology Partners around the world
  63. 63. Why engage with an APN Partner? Consulting Partners provide expertise to help you plan, migrate/build, run, and optimize your workloads on AWS Technology Partners offer solutions that provide additional value for your firm on top of the AWS platform. Marketplace has over 2,300 software listings in over 30 categories The goal of the APN: Set a high bar to help you find the right APN Partner to address your business needs
  64. 64. 2016 AWS Premier Consulting Partners
  65. 65. Advanced APN Technology Partners …and more
  66. 66. Resources to get you started AWS TCO Calculator AWS Economics Center Case Studies and Research
  67. 67. Remember to complete your evaluations!
  68. 68. Thank you!