Introduction to AWS Economics Reducing Costs and Complexity .docx

Introduction to AWS Economics
Reducing Costs and Complexity
May 2015
Amazon Web Services – Introduction to AWS Economics May
2015
Page 2 of 15
© 2015, Amazon Web Services, Inc. or its affiliates. All rights
reserved.
Notices
This document is provided for informational purposes only. It
represents AWS’s
current product offerings and practices as of the date of issue of
this document,
which are subject to change without notice. Customers are
responsible for
making their own independent assessment of the information in
this document
and any use of AWS’s products or services, each of which is
provided “as is”
without warranty of any kind, whether express or implied. This
document does

not create any warranties, representations, contractual
commitments, conditions
or assurances from AWS, its affiliates, suppliers or licensors.
The responsibilities
and liabilities of AWS to its customers are controlled by AWS
agreements, and
this document is not part of, nor does it modify, any agreement
between AWS
and its customers.
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Contents
Abstract 4
Introduction 5
Advantages of Cloud Technology 6
Reduce Costs and Complexity 7
Increase Flexibility 8
AWS Economics 8
Cost Drivers 10

Pricing Model 11
Flexibility 13
Storage and Data Transfer 13
Testimonials 14
Conclusion 15
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Abstract
Considering the expense and complexity of maintaining a
traditional data center,
it’s no wonder that companies are turning to cloud computing as
a way to reduce
costs, increase efficiencies, and build their business. With cloud
computing,
companies have access to a scalable platform; low-cost storage;
database
technologies; and management, deployment, and development
tools on which to
build enterprise-level solutions. Cloud computing helps

businesses in the
following ways:
x Reduces costs and complexity
x Adjusts capacity on demand
x Reduces time to market
x Increases opportunities for innovation
x Enhances security
Amazon Web Services (AWS) gives customers access to cloud
services at
competitive prices, with the flexibility to meet their business
needs. Whether it’s
a small startup or a large enterprise, all companies can leverage
the features and
functionality of AWS to improve performance and increase
productivity.
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Introduction
Weighing the financial considerations of operating a data center
versus using

cloud infrastructure is not as simple as comparing hardware,
storage, and
compute costs. Whether you own your own data center or rent
space at a
colocation facility, you have to manage investments, whether
directly or
indirectly, including but not limited to:
x Capital expenditures
x Operational expenditures
x Staffing
x Opportunity costs
x Licensing
x Facilities overhead
Figure 1: Typical Data Center Costs
If you’re considering an expansion of your data center or
colocation footprint,
here are some questions to ask:
Capacity planning
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x How many servers will be added this year? What are the
forecasts for the
next year and beyond?
x Can hardware be turned on and off when it’s not being used?
x How does the pricing model work?
Utilization
x What is the average server utilization?
x How much needs to be provisioned for peak load?
Operations
x Are facilities adequate for expansion?
x Is the organization ready for international expansion?
x Can utilities (electricity, cooling) be measured accurately and
does budget
cover both average and peak requirements?
Optimization
x Can we provide automatic scaling of our current
infrastructure, or the
ability to “reserve” capacity?
x What if we need to quickly expand the infrastructure? What
costs come
into play?
Advantages of Cloud Technology

As the technology has matured over the last decade, companies
are moving to the
cloud to lower costs, reduce complexity, and increase
flexibility. The cloud
provides scalable and powerful compute solutions, low-cost,
reliable storage, and
database technologies that meet the most demanding workload
requirements. In
addition, cloud technologies can be used to deploy solutions
quickly and cost-
effectively around the world and on any device.
When you decouple from the data center, you’ll be able to:
x Decrease your TCO: Eliminate many of the costs related to
building and
maintaining a data center or colocation deployment. Pay for
only the
resources you consume.
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x Reduce complexity: Reduce the need to manage infrastructure,
investigate licensing issues, or divert resources.
x Adjust capacity on the fly: Add or reduce resources,
depending on
seasonal business needs, using infrastructure that is secure,
reliable, and

broadly accessible.
x Reduce time to market: Design and develop new IT projects
faster.
x Deploy quickly, even worldwide: Deploy applications across
multiple
geographic areas.
x Increase efficiencies: Use automation to reduce or eliminate
IT
management activities that waste time and resources.
x Innovate more: Spin up a new server and try out an idea. Each
project
moves through the funnel more quickly because the cloud makes
it faster
(and cheaper) to deploy, test, and launch new products and
services.
x Spend your resources strategically: Switch to a DevOps model
to free
your IT staff from operations and maintenance that can be
handled by the
cloud services provider.
x Enhance security: Spend less time conducting security reviews
on
infrastructure. Mature cloud providers have teams of people
who focus on
security, offering best practices to ensure you’re compliant, no
matter what
your industry.
Reduce Costs and Complexity
By moving from a traditional data center to the cloud, you can

reduce or
eliminate the overhead related to managing a data center. In
addition to reducing
costs for hardware, software, storage, and networks, your IT
organization can
become a profit center instead of a cost center.
From a facilities perspective, space issues, cooling costs, and
leases become a
thing of the past. From a management perspective, so do
servers, racks, storage
devices, networking equipment, and licensing. The cloud gives
you access to the
latest software when you need it, enabling you to keep up with
trends in
technology without incurring high costs.
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Perhaps best of all, you no longer have to deal with the legacy
systems that may
be blocking efficiencies for you now. Decommissioning existing
infrastructure
can be done with the click of a button.
Increase Flexibility
Moving to the cloud lets you respond to market needs and
opportunities
immediately—without a lengthy procurement process, licensing

issues, or
increasing data center staff to accommodate a sudden surge.
The barriers to entry are significantly reduced, too. Many
companies find that the
costs of cloud computing are so low, they can move as much or
as little of their
environment to the cloud without having to make a business
case to pursue an
idea. Your organization can fail fast, without significant
investments in either
hardware or staff time.
You can also budget according to your business needs. If your
requirements or
strategic priorities change or if demand varies, you can expand
or contract your
cloud footprint as often as you need to.
Moving to the cloud doesn’t have to be a binary proposition.
You can move as
much or as little of your infrastructure to the cloud as suits your
business. For
example, many AWS customers start with a small pilot project
and develop their
cloud use as business needs dictate.
AWS Economics
The AWS infrastructure serves more than one million active
customers in over
190 countries and offers the following benefits to its users:
x Global operations: AWS operates across six continents,
offering
multiple Availability Zones in each of the 11 geographic areas
known as

regions. To achieve the greatest possible fault tolerance and
stability, we
isolate regions from one another. You can put your resources in
multiple
locations to reduce latency and improve performance. Resources
aren't
replicated across regions unless you choose to do so.
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x High availability: AWS operates state-of-the-art, highly
available data
centers. Although rare, failures that affect the availability of
instances in
the same location can occur. If you host all of your instances in
a single
location that is affected by such a failure, none of your
instances will be
available. For that reason, you may choose to replicate data in
different
Availability Zones to ensure swift recovery in case of disaster.
x Low costs due to high volume: The scale and operations of
AWS
support lower costs and higher efficiencies than those in most
on-premises
data centers. These efficiencies are a result of overall supply
chain
optimization, high levels of automation, and volume-based

purchasing.
x Only pay for what you use: AWS allows users to consume
only the
services you need, for as long as you need them and with no
complex
agreements or licensing dependencies. There are no termination
clauses or
hidden fees.
x Economies of scale: AWS has developed hardware and
software that is
optimized for large-scale clouds. We have acquired
manufacturers of
customer servers and net gear, delivering capabilities required
for large-
scale deployments. Similarly, through direct purchases of disk,
memory,
and CPU, AWS can drive economies of scale that are otherwise
difficult to
replicate.
x Financial flexibility: AWS helps customers reduce large
capital
investments with lower variable costs. AWS also gives
customers the
opportunity to work on their own terms without long-term lock-
in,
reducing the risks from unplanned capacity and demand. AWS
helps
finance teams plan and forecast more effectively, while giving
IT teams the
capacity and resources they need, even during peak periods.
The following figure shows a comparison of costs across
traditional data centers,

virtualized data centers, and AWS.
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Figure 2: Cost Comparison of Data Centers and AWS
Cost Drivers
The following table breaks down common cost drivers in a data
center.
Category $ Impact over
60 months
(excl. labor)
Cost Driver
Server
Hardware
32% of total Bare metal servers and virtual machine
physical hosts must be replaced.
Data Center

Facilities
Costs
20% of total Monthly operational costs (lease, power, and
cooling) and maintenance (generators,
electrical equipment).
Traditional
Data Center
Virtualized
Data Center
UPFRONT
COSTS
VARIABLE
COSTS
VARIABLE
COSTS
AWS
UPFRONT
COSTS
UPFRONT
COSTS
VARIABLE
COST
Running internal IT
more efficiently

Cost savings from
moving to AWS
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Storage
Hardware
25% of total Storage hardware must be replaced.
Server
Hardware
Maintenance
9% of total Annual maintenance costs, calculated at 15%
of purchase price per year.
Network
Hardware
7% of total Network equipment in the data center
(routers, arrays, switches, cabling) must be
replaced.
Pricing Model
AWS has been developing cloud technology since the early
days. Our user base
has given us the advantage of having economies of scale. Last
year, Gartner

estimated that AWS had five times the cloud capacity of its
nearest 12
competitors combined.
The AWS pricing philosophy is driven by a virtuous cycle: the
already low AWS
prices reduce the barrier to entry for customers, which means
more customers
take advantage of AWS, further driving down costs.
Figure 3: AWS Virtuous Circle
AWS offers a simple, consistent, pay-as-you-go pricing model,
so you are charged
only for the resources you consume. Moreover, with AWS there
are no upfront
fees, no minimum commitment, and no long-term contracts
required.
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Some AWS products are available through multiple pricing
models that give you
the flexibility to acquire services in a way that best fits your
needs.
x On-Demand Instance: With on-demand instances, you pay for
compute

capacity by the hour, with no minimum commitments required.
x Reserved Instance: For longer-term savings, you can purchase
in
advance. In addition to providing a significant discount (up to
60 percent)
compared to On-Demand Instance pricing, Reserved Instances
allow you to
reserve capacity.
x Spot Instance: You can bid for unused Amazon Elastic
Compute Cloud
(Amazon EC2) capacity. Instances are charged the Spot Price,
which is set
by Amazon EC2 and fluctuates, depending on supply and
demand. For
more information, see Amazon EC2 Spot Instances.
x Pricing is tiered for storage and data transfer. The more you
use, the less
you pay per gigabyte (GB). Volume discounts are also
available.
The following table compares one-year and three-year savings
from the use of
reserved instances versus on-demand instances. The figures are
based on pricing
as of January 2015 on a m3.large Linux instance type in the US
East (N. Virginia)
region.
No Upfront Partial
Upfront

All Upfront On-
Demand
1 Year $876 $767.12 $751 $1226.40
3 Years $1461.40 $1373 $3679.20
Savings
1 Year
29% 37% 39%
Savings
3 Years
60% 63%
Many large organizations customize their agreements with AWS
to further
optimize their costs and meet their needs. You can find
information in the online
communities and in the documentation.
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Flexibility
Not all workloads and applications require the same compute
resources. AWS

gives you options across multiple instance families to optimize
for computing
power, memory, GPU, storage, or general purpose. These
options give you the
flexibility to choose the resources that are right for your
workloads.
Storage and Data Transfer
One of the benefits of the cloud is the increasingly low-cost
storage it provides;
another is the spectrum of storage solutions available to you.
AWS provides low-
cost data storage with high durability and availability.
AWS offers storage options for different types of usage—for
example:
x Storage infrastructure for storing any amount of data and
retrieving it at
will.
x Low-cost storage for data archiving and backup, where the
data may not be
immediately accessible.
x Off-instance storage that persists independently from an
instance,
sometimes called block level storage volumes.
x A file storage service with a simple interface that allows you
to create and
configure file systems quickly and easily.
The following figure shows pricing as of January 2015 for
Amazon Simple Storage
Service (Amazon S3).

$0.027
$0.028
$0.029
$0.030
$0.031
<50 TB 50-1000 TB > 1000 TB
Storage (Amazon S3)
Tiered Pricing
$0.00
$0.05
$0.10
$0.15
1-10 TB 10-50 TB 50-150 TB 150-500
TB
Data Transfer (Bandwidth)
Tiered Pricing
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Figure 4: AWS Pricing for Storage and Data Transfer
Solution
s like Amazon Cloudwatch can help you monitor resource
utilization,
operational performance, and overall demand patterns. With
Auto Scaling, you
can ensure that the number of Amazon EC2 instances scale up
seamlessly during
demand spikes to maintain performance and scale down
automatically during
demand lulls to minimize costs.
Testimonials
Y-cam, a provider of video security systems based in the UK,
cut its TCO by 80
percent over three years simply by deploying its new
HomeMonitor service on
AWS. Another AWS customer, Bookrags, an online provider of
educational

resources, migrated its infrastructure to AWS and reduced its
TCO by 50 percent.
It also improved availability and scalability.
When Hong Kong’s Comba Telecom wanted to move its SAP
Business One
financial reporting system from a data center to the cloud, they
chose AWS so
that they could scale their infrastructure up or down, based on
demand. Comba
estimated the move would result in a 40 percent savings. Not
only did they
realize those savings, but they used only 15 percent of the
budgeted capital
expenditure for the project.
Another example comes from Boston-based Sonian, which
offers a data archiving
system for government, healthcare providers, and educational
organizations.
About the company’s decision to build a service on AWS,
Sonian president
George Nichols says, “As we onboard new customers, elastic
scaling is a real
advantage. We aren’t constrained by physical CPUs, so we

don’t have to limit the
number of customers that can sign up.”
When Chinese telecom Qihoo 360 expanded internationally, it
had a choice to
make: it could build its own data centers in the regions it
wanted to move to,
which would necessitate finding space, building and staffing the
data centers, and
investigating compliance laws and regulations—or it could
simply move to the
cloud. By using AWS, Qihoo dramatically lowered its time to
market globally,
going from testing to production in a matter of days. The
company improved
customer experience for its overseas customers and lowered its
content
development network costs by 30 percent. Xiaosheng Tan, vice-
president of
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Technical Operations, says, “Since AWS has a global
infrastructure footprint, it’s
an excellent and easy way to expand global business for
customers like Qihoo 360
who want to explore overseas markets.”
Conclusion
Amazon Web Services offers a broad set of global compute,
storage, database,
analytics, application, and deployment services that help you
move faster, lower
IT costs, and scale applications. These services are trusted by
enterprises and
startups alike to power workloads that include web and mobile
applications, data
processing and warehousing, storage, archive, and others.
AWS supports customers across multiple geographic areas,
industries and sizes,
consistently offering low prices and industry leading
capabilities.

For more information about how AWS can power your business,
see our website,
create an account, and contact our Sales department.

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