TCO: Total Cost of Ownership (Cloud)

The costs of using the cloud are sometimes discussed without taking into affect the Total Cost Of Ownership (TCO). In this blog post I am going to be looking at some of the potential TCO that may have been missed when comparing traditional “on premise” to Cloud services.

Note: There are many Cloud Service Providers (CSPs) available and they offer many different services at various prices. Please check any pricing before signing up / using a service. I’m not considering if a server / on-premise data centre etc is already available, I’m trying to show that the TCO of on premise instances can include costs that may not have been considered. When choosing a CSP please take a look at what the CSP looks after, and what you (the customer) looks after.

The Hardware

At the time of writing, I found a server with Intel Xeon E-2124 (3.3GHz, 4 cores, 8M Cache), 8GB RAM, no operating system and a 1TB 7.2K RPM SATA (6Gbps) hard drive would set me back £940.02 (or £1571.92 when not in the sale).

Using a cloud service provider’s pricing calculator I can spec up a t4g.2xlarge with 8 vCPUs, 32GB RAM, a Linux operating system and 1TB general purpose SSD (gp2) for $338.36per month ($118.78 for the storage, $219.58 for the compute) using on demand resourcing. Yes, the t4g.2xlarge is different to the Intel Xeon-2141 as it’s Arm compared to Intel but this post is talking generics of TCO not super in depth comparisons. Further pricing could be done for SaaS and PaaS depending on what the server was to be used for.

Off the bat, let’s convert the US dollar ($) pricing into UK pounds (£) using today’s conversion rate of 1 US dollar ($) equaling 0.7687 pounds (£). The cloud service provider price of $338.36 is roughly £260.

£940.02 (£1571.92 when not in sale) outright versus £260 per month. After 4 months of paying the cloud service provider price a brand new server (on sale) could have been purchased out right. However, this is not the true picture. The server may only be being used for 8hrs a day, Mon-Fri. That brings the pricing of cloud service provider down to $129.31 per month (still $118.78 for storage, but now $10.53 for the compute as its $0.3008 per hour). A quick conversion says that the cloud service provider pricing is less than £100 per month. It now takes over 9 months (over 15 months if not on sale) for the price of the Cloud instance to match buying a server outright.

Location

Using an instance in the cloud means no physical location needs to be provided by the customer, i.e. no data centre. So the cost is…£0. A physical server requires a physical location which could be a data centre or just a space in an office. The pricing here varies but it should be somewhere dry and cool. Google says that office space is (on average) £21.17 per square foot in Manchester (UK). So let’s go with that. Over the 9 months that it takes for the cloud pricing to catch up to the physical server cost, the physical server racks up roughly £190 of location charges which is nearly an additional two months of cloud pricing. It’s now taking 11 months of cloud instance to match buying a server outright.

Physical Security

That location costing doesn’t include any physical security. Physical security could be as simple as a lock on the door (from £10) or a padlock / chain combo (I’m guessing £10) to an actual security guard which Google says is paid £18,525 per year in the UK on average, or £9.50 an hour. Not considering the additional payments (pension, taxes, national insurance etc) the security guard would be around £1544 a month. So to secure the physical server with a security guard would cost 15x the monthly cloud cost, every month. That level of extreme is probably too much, so let’s instead use an alarm monitoring solution which would be around £99 to install and then £15-£45 a month to monitor (£30 a month average). Over the 11 months the alarm monitoring costs £330, plus £99 to install – so £429. That’s added another 4.5 months to the time it takes the cloud instance matching the server outright for a total of 15.5 months.

Power

The cloud instance does not generate any extra costs for using power, that’s included in the price so it’s an additional £0 per month. The physical server has a 365W (Watt) power supply unit which (using the UK’s average June 2021 tariff pricing) would cost 19.63p per KWh, or 57.32p per day if the server was on for 8 hours (matching the cloud compute time). Over a month this would be around £17.20, over the 15 months this would be £258 – enough for another 2.5 months of cloud computing. That takes us to 18 months of cloud until the pricing over takes the physical server.

Network Connectivity

The cloud instance includes network connectivity, so again an additional £0 per month. The physical server would need a network connection probably via ethernet (let’s say £1 for a network cable on average) and an internet connection. Home broadband is anywhere from £10 per month upwards, but this does not guarantee up time. A big phone/network provider here in the UK offers 152Mbps download / 29Mbps upload for £34.95 (ex VAT) per month. Using the 18 months its cost so far for the cloud instance to match the physical instance cost it will cost an additional £629. That’s another 6 months of cloud instance. At this point the physical server is costing as much as 2 years (24 months of 8hrs a day, 5 days a week) of cloud instance.

Conclusion

I admit that my pricing does have some extremes and that arguments can be made around how to do certain options cheaper but I think after 2 years (if not sooner) a servers hardware is generally due a review (is it still up to the job, does it need repairs etc) or the server is due some upgrades (additional memory, storage etc). This review period in the cloud can be the compute instance stopped, a new compute instance created and the storage moved across. For a physical instance it involves more work (potentially disposing of hardware).

This TCO blog post has not discussed staffing costs for IT, which can vary greatly depending on whats needed but may include cost of staff / cost of training for staff (depending on skill levels). I’ve also not discussed the advantages of scaling within this post, but have previously in this scaling post.

Hopefully though I’ve shown that when discussing pricing of cloud that the TCO can include some charges that may not be have considered straight away.