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Cloud Economics - TCO 101

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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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Cloud Economics - TCO 101

  1. 1. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. Andy Hindmarch Public Sector, AWS Cloud Economics – TCO 101
  2. 2. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. Introduction Why the economics of Cloud are different Ways to purchase & optimise your environment TCO Considerations Next Steps Agenda
  3. 3. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. Introduction
  4. 4. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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
  5. 5. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. Why are the Economics of Cloud Different?
  6. 6. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. Comparing TCO isn’t easy (But we’re going to try) ≠ Traditional Data Center & Co-Location AWS Cloud
  7. 7. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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
  8. 8. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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
  9. 9. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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
  10. 10. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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:
  11. 11. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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
  12. 12. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. Ways to purchase & optimise your environment in the cloud
  13. 13. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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
  14. 14. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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
  15. 15. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. TCO Considerations
  16. 16. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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)?
  17. 17. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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
  18. 18. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. TCO example: VM Farm On-premises vs. AWS
  19. 19. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. The Four Pillars of Cost Optimization Right Sizing Reserved Instances Increase Elasticity Measure, Monitor, & Improve
  20. 20. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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).
  21. 21. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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
  22. 22. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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.
  23. 23. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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
  24. 24. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. Next Steps
  25. 25. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. Resources https://aws.amazon.com/getting-started/ http://aws.amazon.com/economics/ https://awstcocalculator.com http://calculator.s3.amazonaws.com/index.html :
  26. 26. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 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. 27. Thank you

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