Comparing the Cost of Cloud vs. Colocation

Is colocation cheaper than using a cloud computing services to run the same workload? It is if you run highly-utilized servers, according to Vijay Gill, who recently ran a comparison using Amazon Web Services pricing as a benchmark. Gill is the Senior Manager of Production Network Engineering and Architecture at Google, and knows a few things about data center cost analysis.

Gill posted a spreadsheet outlining his analysis, which finds that an equivalent workload would cost $118,248 at Amazon and $70,079 in a colocation facility. Some commenters have critiqued Gill's data, but his downloadable spreadsheet allows users to plug in different variables, providing a tool to evaluate the economics of different approaches and workloads.   

"Think of it as taking a taxi vs. buying a car to make a trip between San Francisco and Palo Alto," writes Gill. "If you only make the trip once a quarter, it is cheaper to take a taxi. If you make the trip every day, then you are better off buying a car. The difference is the duty cycle. If you are running infrastructure with a duty cycle of 100%, it may make sense to run in-house."

A duty cycle refers to the percentage of time a hardware asset is in use. Getting peak efficiency out of hardware is a key focus for Google, but the colo math won't work as well for companies that get less mileage out of their servers. But cloud platforms will be more attractive to companies with lower hardware utilization.

"Very few businesses run at 100 percent utilization," notes Katy Dormer, public relations manager for Amazon Web Services. "In fact, 15 to 20 percent utilization is more the norm.  A key benefit of Amazon Web Services is that you only pay for the services when you are actually using them. "

Dormer also noted that users running at 100 percent utilization would likely purchase three year Amazon Reserved Instances, which provide savings of nearly 50 percent compared to using On-Demand Instances included in Gill's model. Amazon offers an AWS Economics Center with tools and white papers to help users analyze costs associated with cloud computing.

Carol Brooks at SearchCloudComputing reviews some of the many calculators for analyzing return on investment on various cloud platforms. 

But Gill's post and spreadsheet offer additional data points for companies analyzing the most cost-effective way to deploy growing infrastructures.