Is there a point where a private cloud is cheaper than the public cloud?

Private cloud vendors say they’ve found it, analysts say it’s not that easy

A group of companies that sell products to build private clouds has determined a price at which it claims it is less expensive to operate a private cloud compared to using Amazon Web Service’s IaaS public cloud.

A report from the vendors - which include a collocation provider, a cloud management vendor and a network operator - attempts to address a question many organizations may be considering: When is it better to use a public cloud versus a managed hosting or collocation environment? The case study finds that if an organization is spending more than $7,644 in Amazon’s cloud each month, then it can be cheaper to operate a private cloud.

But analysts say it’s difficult to put an exact dollar figure on when a private cloud will be more cost effective than a public cloud; there are just too many factors to consider, says IDC analyst Melanie Posey.

“It’s very hard to make sweeping statements,” she says in an email. Issues such as the type of workload that is being run, how much the infrastructure is being used, how highly available it has to be, if regulatory or compliance issues need to be addressed and if there are any performance or latency issues are all factors that could influence the costs. “These issues all come together in figuring out whether cloud is more cost-efficient than traditional collocation or hosting.”

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The group that developed the case study consists of Colovore (a co-location provider), OpenStack cloud management software firm Piston Cloud Computing Co., network virtualization vendor Plexxi and King Star servers. They used nine two-node servers, along with Plexxi’s affinity Switch2 switches. They compared their system hosted in Colovore’s data center to running Amazon Elastic Compute Cloud (EC2) on-demand m3.2xlarge virtual machines. Their basic conclusion was that the hosted private cloud system had a higher initial upfront cost, but if enough AWS resources are used - they say more than $7,644 per month - then it is more cost effective to run the system in the collocation facility.

Amazon Web Services declined to comment for this story, but there are some obvious advantages to using the public cloud. The case study created by the private cloud vendors, for example, concedes that for dynamic, “bursty” workloads - those that have spikes of compute or memory power - the public cloud is generally a good fit. AWS also has a variety of services on top of its cloud that are as easy to consume as literally clicking a few buttons and provisioning the machines. These range from advanced databases like the company’s DynamoDB, to real-time analytics engines like Kenesis and mobile application development tools like Cognito. Public IaaS vendors like AWS and Google also provide discounts for volume usage. Amazon has reserved instances, for example, which allow customers to get up to a 60% discount compared to on-demand EC2 prices, AWS says, but they require customers to reserve the VM for an extended period of time.

Posey, the IDC analyst, buys into the idea that it’s usually less expensive to use hosted private cloud for steady-state, sustained usage and predictable load applications. “If the infrastructure for the workload needs to run 24/7/365, then there’s not much point in paying for it on a pay-as-you-go basis,” she says, adding however that public cloud vendors do have incentives for volume discount pricing that could make their solutions more cost competitive. Furthermore, the public cloud has other advantages like being able to have automatic disaster recovery failover without having to buy twice the amount of private cloud infrastructure.

Public cloud vendor Digital Ocean’s CMO Mitch Wainer says the report is missing the point about the differences between public and private clouds.

“The speed and agility of the public cloud allows users to quickly provision servers for their applications, and also provides the flexibility to scale up or down based on their needs,” he says. “This allows users to pay only for the resources they use, while keeping the focus on innovation and productivity without having to worry about infrastructure."

Analyst Lee Doyle of Doyle Research says it’s good for companies that are spending a lot of money on the public cloud to consider if there’s a more cost effective way to run their workloads, including potentially bringing them in-house. Around $7,000 on public cloud spend is enough to consider exploring other options, depending on the size of the company.

But the public cloud is not replacing collocation and managed services. Posey cites IDC figures showing that the collocation/managed service market was $38 billion last year with expected growth to $54 billion in 2017. The cloud market as a whole - including SaaS, IaaS and PaaS - was $47 billion last year; only $12 billion of which was for IaaS. The IaaS market is expected to grow to $31 billion by 2017, IDC says. So, while IaaS is expected to have impressive growth, managed hosting and collocation are still expected to grow as well.

Copyright © 2014 IDG Communications, Inc.

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