Cloud // Infrastructure as a Service
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3/1/2012
04:23 PM
Art Wittmann
Art Wittmann
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Why Infrastructure As A Service Is A Bad Deal

The numbers we cranked speak for themselves: IaaS services from Amazon and others most likely do a disservice to your bottom line.

In a column a few days ago, I questioned the value of infrastructure-as-a-service offerings based on their lack of adherence to Moore's Law. My thesis: While CPU performance and drive storage capacity continue to climb at logarithmic rates, IaaS vendors aren't providing those implied cost savings back to their customers. I received two sorts of responses to that column: those thankful for the oversimplified example I provided; and others wanting more concrete numbers applied to real systems.

I took some time to do a back-of-the-napkin calculation for storage, and I'll share my results here. Before jumping into the numbers, however, it's important to know that it's pretty much impossible to do an apples-to-apples comparison between 2006 IaaS prices (the year Amazon first offered EC2 and S3) and 2012 prices. Sure, for storage systems you can compare drive capacity, but that's not the full story. An iSCSI drive array in 2006 would typically come with two to four Gigabit Ethernet adapters, while today you'll get a few 10-Gbps Ethernet adapters. You'll also get six years of advances in firmware and software. So let me say right from the start: This not only isn't an apples-to-apples comparison, but you probably don't want one.

What we want to understand are the relative improvements in cost, performance, and reliability that you got from IaaS vendors over six years compared to the improvements you'd get from buying systems the old fashioned way and running them yourself. For no other reason than convenience, I chose to compare storage prices. I was able to find some good historical data that I think makes for a compelling comparison. I decided to compare Amazon's S3 prices from 2006 until now with the prices of a hard drive and an actual storage array over the same period.

I threw in the storage array because while the price of a hard drive is obviously going to change radically over six years, the price of other storage system components won't change that much. Power supplies and other hardware don't adhere to Moore's Law, and certainly there are significant costs in developing firmware and software for drive arrays that also don't drop logarithmically. So it would be fair to expect that drive prices would change the most, followed by array prices, followed by the price of the Amazon offering, which must take into account other overhead required to run the storage system. The relative magnitudes of the differences are what's important and telling, and that's what we want to understand.

Since quantity makes a difference, we'll assume that we're looking at storing 50 terabytes of data, and that we'll look at the total cost over four years. This is back-of-the-napkin; we know there are lots of costs I'm not including in that four-year number, including amortization, failed drives, additional hardware requirements, maintenance contracts, and the time value of money. A more detailed analysis is critical for a buying decision, but I think we can illustrate some fundamentals without hauling out a spreadsheet (if anyone wants to do that, please do, and I'll post it and give you credit for the work).

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Once you find the historical data, both the Amazon and raw disk calculation are pretty easy to do. For Amazon, the S3 2006 price was $0.15 per gigabyte per month, so the total cost for 50 TB for four years--assuming a contract with no clause for reduced price over its term--is $360,000. This year, the Amazon price per gigabyte is down to $0.108 per gigabyte per month, so a similar four-year contract for 50 TB would now be $259,200. So it cost 39% more in 2006 to store the 50 TB than it does now. Note that we haven't calculated any fees for using data or retrieving it--just for storing it. We'll get to other fees later. Nonetheless, Amazon is lowering prices, which seems like a good thing.

Raw hard drive costs certainly have dropped radically. In 2006, a Seagate Barracuda 7200 RPM 500-GB drive would run you about $300. For 50 TB, you'd need 100 of them, so $30,000. Today, a 2-TB Seagate Barracuda costs $120. You'll need 25 of them to get you to 50 TB, so that's $3,000.

Note that you're just buying the raw capacity here. If you opt for RAID 10, you'll need double the number of drives, while for RAID 6 you'll need 25% more. The price change over the six years remains the same though. As these numbers show, the 2006 price is 10 times the current price. Surprising, right? Is it reasonable that Amazon is passing along only 39 points of the 1,000-point cost reduction?

Let's see how the drive array pricing works out.

First, this exercise is far more subjective and data for it is harder to find. Here's what I found: In 2006, EqualLogic released its PS3000X line. Among other things, it was the first EqualLogic product to use serial-attached SCSI drives. Loaded with 16 300-GB drives spinning at 10,000 RPM, the system had a maximum configuration of 4.8 TB. However, this is raw capacity. After applying RAID 6, the usable capacity is 3.5 TB. The only reference I could find to its price was from the very reliable Register, so after a quick conversion from 2006 British pounds to U.S. dollars, that configuration works out to $76,900. You need about 14.4 of these to get you to 50 TB, so the cost is $1,110,000. So at least in 2006, Amazon's service was looking like a pretty good deal for four years. After all, Amazon Web Services is doing backups and guaranteeing 99.9% availability.

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J Deskin
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J Deskin,
User Rank: Apprentice
3/14/2013 | 1:36:17 PM
re: Why Infrastructure As A Service Is A Bad Deal
Overall an interesting analysis and I agree that likely there is an opportunity to pass on storage savings to customers as storage technology evolves. I'd like to make a few points, however.

1. I agree with Kevin - you have to consider the cost of people. I get the point that you can't guarantee savings unless jobs are eliminated but I like to tie the costs associated with an offering directly to the offering. If prior storage admins, architects, etc are now working in a new role, they are no longer contributing to the cost of the storage service (costs include external and internal costs, or cloud partner and internal IT staff and OH). This allows decision makers and service owners to put an actual price tag on cost per GB (leveraging Cost, Activity and Throughput accounting). Ultimately all service offerings should strive for the lowest cost while meeting quality and capability requirements (a storage admin that relocated to server support is no longer part of the storage equation/cost). If all service owners take this approach - there will be cost reduction.

2. There is value in elasticity of the service. If you procure 200 TB of storage not only does it have to be supported but you pay for it regardless if it is being used. With Public IaaS services, you spin up what you need, and spin down what you don't need and the cost recovery is immediate unlike with on-premesis infrastructure (think of bad economic times when there is a workforce reduction, or the opposite). Most organizations can't grow as quickly as they need to due to long procurement and provisioning cycles. Essentially the ability to grow and contract is important but also agility is important. There is value there too.

3. The analysis only focuses on the storage dimension when in reality there is much more to IaaS - compute, network, etc.. It may be misleading to those considering IaaS in general rather than just the storage dimension.

Would be great to see the analysis cover these topics as well in order to truly evaluate if IaaS is in fact "A Bad Deal".

Jason
ArtWittmann
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ArtWittmann,
User Rank: Apprentice
3/5/2012 | 1:09:21 AM
re: Why Infrastructure As A Service Is A Bad Deal
Thanks for the comment, but I think the math is pretty close. If you look at the Wiki page on RAID it lists RAID6 efficiency as: 1 Gيئ 2/n, where n is the number of drives in the raid pool. If you have eight drives in the pool then efficiency is 1 - 2/8 or .75. So you'd lose 25% of your capacity.

EqualLogic lists the usable capacity of its raw 96TB array with RAID6 as 69.3TB or 72%, I assume the other 3 percent went to formatting or block tables, or just writing "EqualLogic Is Cool" a few million times.
ArtWittmann
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ArtWittmann,
User Rank: Apprentice
3/5/2012 | 1:09:16 AM
re: Why Infrastructure As A Service Is A Bad Deal
This is an interesting point. You can count the savings on people only if you actually get rid of some, or if you allocate them to different projects. If you a move app to the cloud and your storage, networking, server and app teams are the same size they ever were, you can't take those savings.

Since IaaS still requires a lot of smarts to create images and manage them in production, my bet is that most orgs don't actually see a people benefit.

Cloud Slam
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Cloud Slam,
User Rank: Apprentice
3/4/2012 | 8:54:55 PM
re: Why Infrastructure As A Service Is A Bad Deal
Members of cloud community think differently, see their arguments at http://bit.ly/w9fvd7
dbrown15001
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dbrown15001,
User Rank: Apprentice
3/4/2012 | 5:09:09 AM
re: Why Infrastructure As A Service Is A Bad Deal
Thank you,

You made some very good points that will help me to make better and more informed decisions about IaaS.

David C Brown, PMP, CISSP
businesscybersecurity.com

dward339
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dward339,
User Rank: Apprentice
3/3/2012 | 12:54:19 PM
re: Why Infrastructure As A Service Is A Bad Deal
In general principal I agree with your overview. Since everyone knows that the actual storage hardware cost have gone down (drives, storage array, etc). It's the "add-on's" that really come into play. The pricing (again in general) from most providers is next to impossible to calculate due to knowing how many times are you going to access this data in a month, are they charging additional bandwidth fees, etc.
Not to "sell" anyone on services as this is NOT the appropriate forum, I setup a small data center to offer these services for my client base mainly out of shere frustration with the local market not wanting or understanding the value of managed services. I now have several of my clients where I have virtualized or am in process of virtualizing their networks & providing them with "real world" IaaS. On average they are enjoying a 35% cost savings over the break/fix support they spent over the past 5 years (by their calculations). One particular client (local public airport) has saved just over 50% on refreshing their servers/desktops alone in the last 6 months.
My fees are flat rate...NO ADDITIONAL hidden charges. They love it and are able to commit their attention to expanding and have been able to "capture" an additional 3 new carriers.
Set monthly pricing, no add-on charges to nickel & dime them to death, easy to budget for & know exactly every month what their cost will be. As I said it's the add-ons that get you.
If a company as small as mine can do this the "big guys" certainly can.
rolinger55401
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rolinger55401,
User Rank: Apprentice
3/3/2012 | 1:15:31 AM
re: Why Infrastructure As A Service Is A Bad Deal
I think the analysis reaches the right conclusion, but some of the math is just plain wrong. For instance, RAID-6 requires 33% more drives than raw (addomg 1 drive to 3 is 33%), not 25%. It is an easy mistake to make if you do the math in the other direction, but I would expect him to get it right. Art also left out any consideration of performance, considering that if you buy and host your own array, you have a lot more bandwidth per server at your disposal. Our analysis of AWS is that even with our entire TCO, it was far cheaper to host internally for systems that are "Big".
Kevin Griffie
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Kevin Griffie,
User Rank: Apprentice
3/2/2012 | 9:57:08 PM
re: Why Infrastructure As A Service Is A Bad Deal
It seems to me that you can't just look at the cost of hard drives when doing this kind of analysis. You also need to include people costs. If those people costs are a significant part of the overall cost, and those people costs have not decreased or even increased, then I believe the logic of this simple analysis falls apart.
Sam Iam
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Sam Iam,
User Rank: Apprentice
3/2/2012 | 8:27:15 PM
re: Why Infrastructure As A Service Is A Bad Deal
Good points, but I think the costs will rebalance themselves. If one IaaS provider is taking advantage of Moore's Law advancements, another provider will come in and undercut their prices. Also, the costs for most IaaS, especially those cloud infrastructures running on cheap x86 servers and JBOD, is not in the equipment, it is in the management of the equipment, power/cooling, network, monitoring, etc. Equipment plays a pretty minor role.
RobertReynolds
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RobertReynolds,
User Rank: Apprentice
3/2/2012 | 8:10:50 PM
re: Why Infrastructure As A Service Is A Bad Deal
I think you make some good points about trying to ensure you aren't swindled by IaaS vendors like AWS, but I don't think you give enough thought to other costs and factors that make up the value proposition of going with an IaaS solution. Being an "as-a-service" offering, it provides a different (read: simplified) way of getting the job done. I agree that a lot of thought needs to be put into purchasing computing resources, but to write it off as a wholly bad deal seems unfair. As long as a company knows what it means to be an "as-a-service" offering, IaaS could be a perfect fit for their business needs.

As with most other "as-a-service" offerings the price is greater than what you pay to do it yourself because you're leaving some of the decisions that go into maintaining your infrastructure to someone else for a fee. Some simple examples include: Which server company should I buy from? What are the costs associated with bringing people in to install and/or maintain the servers? How will the resources be electrically powered? Where will they be stored? Who will physically secure them? IaaS takes care of these and more. The upfront management costs can serve as barriers to entry for smaller companies without big IT departments that are trying to do application development and analytics work. Not having to worry about all of these things to get a project moving can appeal to those smaller companies who are willing to pay more per month and avoid the initial costs.

Another key aspect of "as-a-service" offerings is that they focus on providing the service in near real time. When an organization wants to start a project that requires the acquisition of computing infrastructure, it can take months before development can begin due to the lengthy acquisition processes most companies and agencies must go through to get their resources. Many project ideas get thrown out because they're perceived as being too difficult to get underway. IaaS allows development to start in a matter of hours to days instead of months.

Finally, IaaS isn't permanent, which means that you don't have to buy into a long-term infrastructure to do a pilot project. If the pilot project turns into a more permanent engagement, then companies should definitely reconsider how they've setup their infrastructure to optimize their setup over in the long run, but investing in physical infrastructure in stead of IaaS can tun into a big loss if the pilot project isn't continued.

I'm not saying that AWS is doing IaaS the right way, but I am saying that IaaS is not a flawed concept. It could always be cheaper, and from your previous article, I agree with you that it should be.
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