One Cloud Cost Advantage That May Be Irresistible

A couple of interesting whitepapers crossed my desk over the past week whose message can be boiled down to a simple proposition: cloud providers can achieve economies of scale that preclude almost any organization's data center from being cost-competitive. Doing the math on one real-life example, a Microsoft data center, gets pretty interesting.

Cloud computing vendors converge on standard definition, goals

One paper comes from Microsoft, called The Cost of a Cloud: Research Problems in Data Center Networks. It focuses on the general cost structures of data centers and discusses how they can be reduced. The second is the work of a single author named Steve Denegri and is called Cloud Computing Dominance Through Renewable Energy; it was originally published by Virtual Strategy Magazine. Virtual Strategy has very kindly arranged to make the paper available at its website.

The Microsoft paper describes the challenges of reducing overall costs structures of data centers and discusses various strategies, including migrating redundancy and robustness measures (e.g., UPS) from individual data centers to the agglomeration of data centers. With this approach, less investment is required, since costs associated with hardening individual data centers can be foregone. Another area the paper addresses is the overall power draw of data centers; while not necessarily proposing specific technologies to reduce power use (save running the center at a higher overall temperature to reduce AC costs), it does recommend finding cost incentives to motivate system users to spread demand to a more even use pattern. This would have the effect of reducing peak demand and therefore reduce overall power consumption. The paper contains a table on Page 1 identifying the various components of data center costs; servers are the number one cost at 45%, but "power distribution and cooling and electrical utility costs" are numbers two and three, summing to 40%.

The second paper, as indicated by its title, focuses on the energy component of data centers. The author, who I had the chance to speak with after reading his paper, is a former investment banking financial analyst; his facility for research and digging into numbers certainly shows in the paper. He has done a lot of digging into the cost structures of data centers; specifically, he decomposed the cost structure of a huge Microsoft data center (on the order of 100K servers in a single facility) in San Antonio, Texas. His paper quotes a Microsoft source (uncited, unfortunately) that energy comprises 82% of the total cost of running a data center.

Denegri digs into the deal that Microsoft struck with the City of San Antonio for property tax relief as well as with the local power company, CPS Energy. From his research, he concludes that Microsoft obtains a 22% discount on its property taxes (this is based on a discount extended to companies that make very large real property investments). With regard to power, Microsoft obtains a 45% discount, based on using enough electricity to fall into a "Super Large Power" user category. This advantage may be enhanced in the future, Denegri states, because of potential taxes to be applied to carbon-based power. Microsoft may be able to strike an arrangement to have its data center powered by clean energy sources (e.g., wind or solar), thereby avoiding these additional taxes.