1 Data & Research ISG Cloud Comparison Index : June 2015 The inaugural ISG Cloud Comparison Index finds monthly prices for public cloud services vary as much as 35 percent between leading public infrastructureas-a-service (IaaS) providers; internal IT costs are competitive with public Iaacosts when cloud instance usage* is more than 55 percent. Key Findings Prices for similar infrastructure configuratios vary substantally between public cloud providers. The monthly price for a sample configuratio varies significantly among the public cloud infrastructure-as-a-service (IaaS) providers we analyzed: Amazon Web Services, Google Cloud Platform, Microsoft Azure and IBM SoftLay At 100 percent instance usage, the highest cost optionis 35 percent higher than the lowest cost option. Public cloud prices are highly sensitive to usag. The price spread between public cloud providers is twice as wide at 100 percent instance usage as it is at 50 percent. The provider with the lowest-priced services varies depending on the usage level. Internal IT costs are significantly less than the public cloud when cloud instance usage is high. When instance usage is 100 percent for the specific configuraton we analyzed, the internal IT cost is 32 percent lower than the lowest-priced IaaS offering. When public cloud usage is less than 55 percent, internal IT costs cannot compete. As expected, public cloud options become muc more financially attractivfor the configuration we analyzedas cloud instance usage decreases, delivering on the promise of cloud to reduce cost by charging clients only for what they use. Usage is the primary driver of cost in the public cloud, but configurations and featuresalso play a significant role. While the break-even point for the configuration we analyzed was 5 percent instance usage, different infrastructure configurations and additionaoption, ooen specific to each cloud provider, can dramatically influence the break-even point. * A cloud instance is a virtual machine comprised of a specific number of CPUs and a specific amount of RAM. Cloud instance usage is the percentage of time that an instance is running and accruing charges from the public cloud provider.
2 Background With the advent of public cloud infrastructure, enterprise technology buyers have a dramatically expanded array of IT delivery models from which to choose. While choice creates opportunity, it also creates complexity. ISG sees this complexity increasingly finding its way into our clients sourcing decisions. Until recently, the infrastructure sourcing process focused on identifyin providers that could architect and run an enterprise s environment more efficiently and at a lower cost than it could do on its own. The provider was responsible for creating and optimizing services to meet contractually committed cost savings and servicevelsy The tradeoff? The enterprise had to agree to pay for services each month regardless of usage, make significant capital expenditures to start up the services and make a long-term contractual commitment to the service provider. In a market being disrupted by cloud technology, enterprise buyers now are presented with a compelling new value proposition: pay for your infrastructure only when you need it, dramatically reduce capital expenditures an virtually eliminate the need for commitment, all while reducing the time to provision servers and storage. This is driving intense interest from existing enterpriseinformation technology outsourcing ITO) buyers. However, buyers are discovering that this value proposition applies onlyto selected application and workloads, and not to an entire data center. Creating a business case for themigrationof a workload to the public cloud is ooen the first step on the cloud journey. However, comparing workload costs between a traditionalit environment and the public cloud can be extremely challenging, as costs for a traditional environment are notdirectly tiedto usage. In a traditional o- premises IT environment, labor and assets drive cost, which is the antithesisof the public cloud, where usage drives cost. ISG Cloud Comparison Index In response to an increasing number of inquiries on this subject, ISG developed the ISG Cloud Comparison Index to help clients understand the relationship between usage and cos in the public cloud, and how those costs compare to a traditional IT environmen. For this first report, we created a model of a small sample configuration thatreflects one type of infrastructure we see buyers piloting in the public cloud, typically for new application development or test. The configurationis as follows: Item Quantit Specificatio Application Server 4x 2 cores, 1.6 GHz per core 4 GB RAM 100 GB local disk Windows Database Servers 2x 4 cores, 1.6 GHz per core 8 GB RAM 100 GB local disk Windows Storage 1x 1000 GB NAS We then applied costs associated with the model configuration.given the lack of standardization in the way public cloud providers price their services, minor variatios in configurationwere required to determine a price for each service. 2
3 Using ISG s proprietary cost database and deep benchmarking expertise, wethen created and analyzed a detailed financial model of a comparable internal IT configuration. This model functions as a snapshot the typical costs incurred by a large, internally managed IT organizatio, including the costs of all the relevant hardware, software, facilites and labor that a corresponding public cloud service would replace. Findings The ISG Cloud Comparison Index found that the price of public cloud services at 100 percent instance usage varies significantly from one provider to the next, ranging from $811 a month to $1,096 a month. We also found that the cost of the internal IT configuration wa $548 a month, significantly lower than the lowest cloud price. As usage changes, the public cloud price also changes. At a usage level of approximately 55 percent, public cloud prices are at parity with the prices in our internal IT benchmark, as seen in Figure 1 below. Monthly Configuration Cost (US $) Figure 1: Average price of public cloud services vs. internal IT $1,200 $1,000 $800 $600 $400 $200 Public Cloud Avg. When we analyzed the prices for public cloud services in relation to usag, we found a range of 35 percent. In other words, the highest price for our configurationat 100 percent usage is 35 percent higher than the lowest price. The range decreases gradually as the average usage of the compute instances decreases, as seen in Figure 2. Monthly Configuration Cost (US $) Figure 2: Cloud price distribution by usag Internal IT $0 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Average Compute Instance Utilization Source: ISG Research $1,200 $1,000 $800 $600 $400 $200 Public Cloud Ranges Internal IT $0 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Average Compute Instance Utilization Source: ISG Research 3
4 Takeaways Cloud is not always cheaper. Usage is a key determinant of cost in the public cloud. High levels of cloud instance usage can create scenarios in which internal IT is more cost effective;conversely, low levels of cloud instance usage can create a scenario in which internal IT is more expensive. For internal IT, labor and assets are the determinants of cost rather than usage. An enterprise s existing scal and operationa efficiency in the use of these resources play a key role in how well they compare to the public cloud. Public cloud creates significant cost avoidance opportunitie for volatile workload. An enterprise should avoid viewing public cloud only as a lever to reduce operational costsin the same way that outsourcing has often been viewed in the past. However, public cloud can be an important tool to reduce or eliminate future capital expenditures as it can help enterprises avoid over-provisioning their IT environments to meet high levels of periodic demand. When companies couple the reduction o capital expenditures with other proven benefits of public cloud adoptio such as rapid resource provisioning, infrastructure automation and the elimination o refresh projects they are likely to have a compelling case for choosing public cloud for those applicationsthat can run on highly standardized and shared infrastructure. Applications that can takeadvantage of automation to d-provision unused images can help clients capture potential savings Since usage drives cost in the public cloud, applications with the most variable usage pattern are strong candidates. If the applicationin questio can release compute resources when not needed (or can be easily modified to do so), and the demand for processing varies substantially over the course of a month, day or even hour, then the financial benefits of moving it to the public cloud can be quite significant. Mapping usage patterns and technology requirements to public cloud providers will helpenterprises identify the lowest cost optio. Given the variable nature of pricing across IaaS providers, clients likely won t know the full cost of the applicatio (and associated cost-avoidance opportunities) until the application is actually running in t provider s cloud. Additionally, s public cloud providers continue to aggressively change and reduce pries to compete in the emerging enterprise IT market, comparing prices between providers becomes more complex, and the variability of pricing from one applicaton workload to the next can be quite significanty To complicate matters even further, the price spread between providers decreases as compute usage decreases, putting more value o the features and capabilities that are unique to each provider. To create viable business cases for workload transformation, enterprises will increasingly need deep understanding of the nuances of the various pricing models, as well as how those models relate to specific workloads. 4
5 Assumption and Notes The internal IT benchmark represents the technology choices ISG currently sees enterprise IT organizations makin most frequently today. The benchmark does not adjust for differences that may exist between the technology choices of internal IT organizations andpublic cloud providers (e.g., brand of hardware, etc.). The benchmark is sensitive to scale.since ISG clients tend to be large enterprises, we have tuned the benchmark to be comparable to organizations with at least 3,000 Windows images and 3 PB of usable disk storage. Organizations with smaller scale should expect public clou prices to be more competitive with internait operations The benchmark leverages global data normalized for the US market. Public cloud configurations and pricingare sourced from Gravitant. These data points are current as of May 21, They assume on-demand pricing for one month and are based on data centers located in the Eastern United States. Enterprises can often obtain ower prices by committing pre-paid instances, typically for at least one year, but this arrangement can eliminate the benefits of price drops and the opportunities to be had fro releasing resources during the committedterm. Volume discounts for IaaS can vary and are not reflected. However, our model does take into account Google s sustained-use discounts. We did not include service desk support costs in either our cloud pricing or the internal IT benchmark. This is primarily because public cloud support models vary substantially inboth service provision and pricing mechanisms. We did not include bandwidth charges in our public cloud pricing, nor did we include networking costs in the internal IT benchmark. As with any sourcing decision, provider comparisons should go well beyond pricing. Each public IaaS provider delivers different support programs, infrastructure technology, automationand features, all of which can have a significant impact on price. Your operational excellence is our business. CONTACT US Visit AccessISG Online for more sourcing information, insight and tools. Click the envelope to contact us or go to About Information Services Group (ISG) Information Services Group (ISG) (NASDAQ:III) is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operation environments through research, benchmarking, consulting and managed services, with a focus on informatio technology, business process transformation, program management services and enterprie resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest dat source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 900 employees and operates in 21 countries. For additional information, visiwww.isg-one.com. 5