This document discusses various factors that impact the total cost of using cloud computing services and provides strategies for optimizing costs. It notes that while public cloud services may not always be cheaper than traditional infrastructure, careful planning around region selection, instance sizing, reserved instances, spot instances, and application architecture can significantly reduce costs. The key is purchasing compute resources flexibly based on just-in-time needs rather than maintaining excess idle capacity.

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Why Isn’t the
Cloud Cheaper?

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Beware of little expenses; a small leak will sink a great ship. -- Benjamin Franklin
Know what you own and know why you own it. -- Peter Lynch
Enough is better than too much. -- Dutch Proverb

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Economies of Scale
Constant innovation by hyperscale cloud providers creates
competitive advantage:
| Building their own network facilities and fiber
| Contract manufacture of servers and infrastructure
| Velocity of new features leaves no opportunity for leapfrogging
| Industry leading use of DevOps in all areas including security
Enterprises
CLOUD ARCHITECTURE

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The Price of Agility
CLOUD ARCHITECTURE
| Traditional approach shares infrastructure across applications
| The hidden cost to sharing comes when it’s time to upgrade
| Sharing environments across applications creates blockers
| Unit costs in the cloud are less but consumption is greater
| Use public cloud to increase velocity, not save money
| Choose wisely when to share infrastructure

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Future Trends
More granular units of consumption
Charging by minute instead of hour
Enhancements to the spot instance market
Dynamic vs static compute platforms
Managing ephemeral computing
Resiliency in the face of uncertainty
Buy as
much as
we can
Buy just
what we
need
Anticipated Usage
Just in Case
More waste
Actual consumption
Just in Time
Less waste
vs.
CLOUD ARCHITECTURE

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Cost and variety of
instances varies by region
There is no quantity discount
Just In Time and Autoscaling
Annual for discounts
Planning can be complex
Discounted capacity,
interruptible
Open source vs.
commercial software
PaaS vs. IaaS,
Containers, Serverless
REGION SELECTION INSTANCE SIZING
RESERVED INSTANCESSPOT INSTANCES
SOFTWARE LICENSING COMPUTE PLATFORM
PRICING FACTORS
Language, algorithm, query
optimization, caching
APPLICATION DESIGN
Autoscaling, Fault
Tolerant, PaaS, FaaS
RESOURCE SHARING
Lift and Shift, Idle Capacity
CLOUD ARCHITECTURE
CONSUMPTION FACTORS
NUMBER OF INSTANCE HOURS USEDPRICE OF INSTANCE HOURS

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Region Selection
Cloud provider infrastructure costs vary by region and this is reflected in
the pricing (see table above).
Factoring in the nature of the application, government regulations, and
availability requirements, chose regions to optimize cost.
Content Delivery services are a more cost-effective solution for addressing
latency concerns that deploying additional regions.
AWS Virginia California Oregon London Frankfurt Mumbai Tokyo Singapore Sao Paulo
m4.xlarge
4 vCPU, 16GB
$0.200 $0.234 $0.200 $0.232 $0.240 $0.210 $0.258 $0.250 $0.318
Azure Virginia Iowa Washington London Frankfurt Mumbai Tokyo Singapore Sao Paulo
D3 v2
4 Cores, 14GB
$0.293 $0.293 $0.229 $0.351 $0.306 $0.337 $0.409 $0.316 $0.343
GCP Virginia Iowa Oregon London Frankfurt Mumbai Tokyo Singapore Sao Paulo
n1-standard-4
4 vCPU, 15GB
$0.2140 $0.1900 $0.1900 $0.2448 $0.2448 $0.2282 $0.2440 $0.2344 $0.3017

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Instance Sizing
One of the advantages of the public cloud is buying only what you need.
There is no quality discount as instances within a family get larger.
Instance cost scale linearly until a price premium for the largest instances.
Use autoscaling to handle variable traffic loads instead of oversizing your
instances.
AWS m5.large m5.xlarge m5.2xlarge m4.4xlarge m5.12xlarge m5.24xlarge
vCPU 2 4 8 16 48 96
Memory 8 16 32 64 192 384
Rate $0.112 2 * $0.112 4 * $0.112 8 * $0.112 24 * $0.112 48 * $0.112
GCP n1-standard-2 n1-standard-4 n1-standard-8 n1-standard-16 n1-standard-32 n1-standard-64
vCPU 2 4 8 16 32 64
Memory 8 15 30 60 120 240
Rate $0.1070 2 * $0.1070 4 * $0.1070 8 * $0.1070 16 * $0.1070 32 * $0.1070
Azure D2 v3 D4 v3 D8 v3 D16 v3 D32 v3 D64 v3
vCPU 2 4 8 16 32 64
Memory 8 16 32 64 128 256
Rate $0.10 2 * $0.10 4 * $0.10 8 * $0.10 16 * $0.10 32 * $0.10

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Reserve Instances
Using reserved instances provides significant cost savings but requires dedicated
financial management and possibly third-party tools.
Calculating the mix of instance quantities, terms, and payment options requires a
process, assigned roles, and experienced staff.
The table above illustrate some factors that go into managing reserve instances.
More organizations choose the 1yr term to avoid lock-in when technology and
application requirements change.
Characteristic
AWS Azure GCP
Standard Convertible Standard Committed Use
Terms 1yr (40%), 3yr (60%) 1yr (31%), 3yr (54%) 1yr(37%), 3yr(59%) 1yr(37%),
Change AZ, Instance Size,
Networking
Yes Yes Yes Yes
Change family, OS, tenancy,
payment
No Yes Yes Yes
Benefit from Price Reductions No Yes Yes
Early Termination
Sellable on Reserved
Instance Marketplace
Coming soon
Cancellation (prorated + 12% fee)
Exchange (prorated)
No

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Spot Instances
Use of spot instances requires some creativity and automation.
It provides the largest available discounts
New features like persistence, hibernation, and defined duration (AWS).
Not useful for a server that needs 24/7 but great with autoscaling clusters
AWS On-Demand Reserved (1yr) Spot Instance Defined Duration (1hr) Defined Duration (6hr)
m4.xlarge $0.200 $0.120 $0.0602 $0.100 $0.130
Discount 40% 70% 50% 35%
GCP Sustained Use Committed Use (1yr) Preemptible
n1-standard-4 $0.190 $0.120 $0.040
Discount 37% 79%
Azure Pay As You Go Reserved (1yr) Low-priority
D4 v3 $0.200 $0.116 $0.040
Discount 42% 80%

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