1. Cloud as a Data Center
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Cloud: Can it be a viable replacement for a data center?
Companies are being bombarded with hype about Cloud Computing. Large, incumbent vendors are re-
branding their legacy technology as Cloud, while the media labels every technology under the sun
“Cloud” in order to drive readership. It’s no wonder that the picture around cloud is murky at best. This
not only creates confusion, it forestalls companies from making rational, timely decisions about if and
when to use cloud computing. In order to help shed some light on the value and risks associated with
Cloud we will attempt to do a simple, apples to apples financial comparison between two popular
alternatives for building a Greenfield data center using both “The Cloud” in the form of Amazon Web
Services and building a physical data center.
Scope
This analysis examines the potential for using Amazon Web Services (AWS) as a virtual data center with
building a traditional physical data center in a colocation facility such as Savvis, ATT or IBM. To keep
things simple we have not included a third option of locating and building a data center at company
owned property as that alternative adds the costs of real estate, power, cooling, taxes and physical
security to the equation greatly increasing costs over either of the first two approaches (but that is
certainly possible to do and has the benefits of ownership and physical control.)
We have also not included storage, data transfer, CDN, monitoring, geo-location and other extra
features as direct cost comparisons are difficult due to the difference of buy vs build for most of them
(while one can buy these features from AWS or build them yourself, it is difficult to calculate the cost for
the latter and, therefore, to make a fair comparison between the two.)
Assumptions
We’ve used as an example a medium sized data center model comprised of 1000 servers. The
assumptions are that all the servers live in one datacenter located in a single US geography with no
failover or disaster recovery. I’ve assumed there are 40 servers per rack for a total of 25 racks and that
the colo facility will charge $1000 per powered rack per month. The average cost to buy a quad core
commodity server is $2500. I’ve also assumed that networking gear will equal 20% of the server budget.
We also assume that procurement for the colo approach will be spread equally across each quarter of a
fiscal year in order to better control budgets and to give operations time to ingest the hardware and
that all of this capital budget is absorbed in the first fiscal year. We have also assumed that, as a result of
an AWS feature called Elastic Load Balancing – the ability to automatically bring servers up and down
based on load – the absolute number of servers needed in the AWS approach is half of the colo
approach. This may be conservative as physical servers typically run at 25-30% of their capacity. It is also
common to provision physical data centers for “worst case” scenarios that can only be estimated. Lastly
we’ve assumed that, in a cloud based datacenter, admins can better leverage automation tools and so
have a two to one advantage in productivity over admins in a physical data center. (This may also be
Copyright Smartscale Systems 2010

2. Cloud as a Data Center
conservative as we’ve seen anecdotal evidence of a Ten to One advantage.) The cost of building that
kind of automation (i.e. a private cloud) would be prohibitive for this small a data center. 2
Conclusions
The analysis shows that during the initial investment year one, AWS has a significant advantage of over
60 percent less that the colo approach. However, over the three year life span of a server AWS would
costs almost 19 percent more than the colo approach. In year four, when a server refresh would be in
order for the colo, the procurement cycle would repeat meaning a new investment of Three Million
Dollars while the AWS approach cost would be steady state or declining slightly. Therefore, in year four
the four year accumulated advantage swings to the favor of AWS by 18 percent.
It’s important to note that this model does not capture the value of time to market. The time required
to build out each data center is dramatically different. While an AWS based datacenter of this size could
be brought up for the first time in a matter of days (or hours), a physical datacenter of this size would
take months to accomplish. In fact, companies that have used the cloud cite business agility as the
number one advantage of a cloud over a physical data center – not cost differentials. Additionally, the
time and cost required to recreate the management tools, virtual machine support, monitoring and
other software that would put a colo on par with a cloud for ease and rapidity of deployment (i.e. a
private cloud) is considerable - perhaps more than the entire data center itself.
Copyright Smartscale Systems 2010