Based on these results, the company undertook a study to compare the cost of virtual services with those of traditional IT service providers. They came to a surprising result.
Cloud services can reduce costs by up to 50 percent or more. While there are challenges involved in using the Cloud for mission critical applications, for tasks such as testing and development it offers a flexible environment with significant savings potential.
Setting the Benchmarking Parameters
To establish whether or not cloud services posed a serious alternative to established managed services for high volume, secure business requirements, the study focused on a specific provider – “Amazon Cloud Private” – which provides virtual computing power over a VPN.
To make an ‘apples-to-apples’ comparison between cloud and traditional managed services, a set of specifications was first defined including parameters for such things as process and infrastructure complexity, flexibility, quality assurance and performance requirements (for example, 99.5 percent+ availability; 24x7 support) which were then mapped to a standard service level agreement (SLA).
Comparing Service Costs
The result of the benchmark project was that, given a comparable set of specifications, cloud-based solutions were found to reduce managed server costs by up to half, and in some cases more. The study reviewed a mid-sized managed server environment from an IT outsourcer offering a standard SLA (including 5x10hrs support) for £320 a month.
A comparison was then made with a similar server provided by Amazon (with a contract period of three years) cost about £220. However this price also included the cost of a broadband Internet connection and assumes the full server capacity is used throughout the entire month on a 24/7 basis – equivalent to a premium+ level SLA with a traditional supplier.
Taking these two additional features into account, the Amazon price was close to 50 percent less than the traditional service provider.
The Cloud’s Downside
However, despite the clear cost advantages, there are some major obstacles to using a virtual server environment. Because cloud-based providers do not offer the same levels of operational and safety procedures as a traditional IT service provider, it is not recommended for mission-critical applications.
In addition, long-term budgeting is hard to plan because Amazon reserves the right to change the prices and terms of its Cloud Services at any time it chooses. For larger companies that require long-term supplier reliability and pricing stability, these particular drawbacks are typically viewed as unacceptable.
There are also data security issues. This is always a concern using an open channel like the Internet, and now it is doubly so in a virtual server environment that cannot be locally controlled. However, there is a solution.
If Amazon adopts a policy of retaining customer data for seven years mandated for data centres in the EU (as Microsoft has done with Azure), and if clients are prepared to accept the higher security risk, then there is a very strong case for using cloud solutions. Moreover, the data risk can be reduced significantly by using dedicated network connections rather than the internet – an option that would not necessarily entail significant additional cost.
Great for Testing
Fortunately, not everything is mission critical. The study identified that up to 25 percent of the computing capacity of a typical large organisation includes non-critical applications as software development and testing. For this type of activity, a cloud service is ideal. By relocating these applications to the cloud, a company can easily reduce the costs for their IT server infrastructure by around 15 percent without sacrificing any quality.
Of course, in addition to Amazon, there are an increasing number of virtual hosting companies with similar cloud offerings on the market. In the future, traditional solution providers may well see that survival lay in forging partnerships with organisations like Amazon.
By providing economies of scale, standardisation and flexible features like online booking and administration infrastructure services, a player like Amazon can provide costs structures that are orders of magnitude more attractive than legacy IT services providers, while harnessing the latter’s ability to high levels of service quality and reliability.