I don’t want to imply that this kind of misinformation is solely the reserve of this particular analyst firm. This kind of misinformation is spouted throughout the industry; one of the vendors I spoke to dragged out the old shibboleth that AWS is mostly used by small businesses and startups, not mainstream enterprise IT organizations. Wow. In 2016.
Fortuitously, analyst firm The 451 Group published a lengthy study on private cloud costs just a few weeks ago. The study received a ton of press attention (e.g., here, here, and here) because it stated that private cloud computing could be cheaper if the user organization achieved a certain level of labor efficiency — 400 virtual machines per administrator. Because of my interest in the topic, I’ve spoken to the study’s author, Dr. Owen Rogers, a couple of times in the past, and I reached out to him to get the full report so I could understand the basis of the cost estimates.
Essentially, he used industry standard cost structures (e.g., the typical cost for an infrastructure engineer or a commonly-configured server) and asked vendors what the software infrastructure and employee costs would be to support a given cloud capability. From this he developed a per-VM cost basis and then compared that to public cloud providers and noted a cost crossover point at 400 VMs. Above that figure per administrator, private clouds are less expensive; below that figure, public clouds cost less.
24/7 cloud use a bad assumption
One thing emphasized in the report, but not mentioned at all in the press coverage, is that the private cloud cost estimates are based on the cloud running at 100 percent utilization. That is, the study assumed that all infrastructure was busy 24 hours per day, 7 days per week. Clearly, this is unrealistic. The public providers keep some capacity in reserve to address spikes in demand. In fact, their utilization management goes well beyond just having spare capacity; they use discounts and low-priced preemptible processing to carefully keep utilization at a level that maximizes revenue while avoiding capacity unavailability.
While using 100 percent capacity utilization as a cost estimate assumption is completely understandable, it does not reflect the reality of private clouds. Far from using the same kinds of capacity utilization tools that public clouds do, most private clouds throw up capacity and do little to manage utilization beyond announcing the cloud’s availability. In other words, IT groups do little to track utilization and certainly do not manage capacity like a real service provider would.
Anecdotally, most private clouds run at 20 percent to perhaps 50 percent utilization, while many are far lower. Clearly this dramatically affects the private vs. public comparison — the cost crossing point is probably more like 800 to 1000 or more VMs per administrator. How likely most enterprise IT groups are to achieve that level of labor efficiency is uncertain at best.
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