The Storage Economist

I have had several blog entries on cloud services and the risk of just shifting costs to the cloud. There are some other entries on identifying your current costs of a class of storage (say tier 3) to accurately compare and contrast the exact same costs from a cloud vendor.

I have been helping a few partners develop business cases for cloud storage offerings, primarily for tier 4 or archive space—a popular starting place to test the feasibility and economics of public cloud infrastructure solutions.

Defining and comparing your current costs to a proposed pay-as-you-go model has to include all the same cost categories. But within the cost categories there are many different rates, which are a function of location, age, capacity and growth:

• Location is important because each country has different labor rates, electricity rates, marginal tax rates, etc. Even in the US there is a wide range of labor rates and environmental costs between large metro areas and remote data center locations.
• Age is important since older systems have maintenance costs, higher power costs, higher rate of failures and are on the verge of a migration or re-mastering cost. If cloud vendors compare against new customer installations, they have to compete with pretty good prices and environmentals (without a lot of the baggage that comes with older environments).
• Size matters in terms of cost. Larger users demand better discounts and ELA terms. Large environments tend to have better management processes and procedures to reduce labor impact.
• Growth rate can be a telling indicator of cost, since very high growth environments tend to have spiking problems with labor efficiency, availability, utilization rates, etc.

If you are shopping for a single tier 4 cloud price (say $0.15 – $.20/GB/month, but don’t get hung-up here with what that may or may-not include) then you need comparatives to your own situation—you will find obvious sweet spots and the eventual sour-spots. Let me show this in a graph:

Clearly the older assets, regardless of location, will be a good target for a cloud solution. A client’s newer systems, or brand-new options in some countries (say SE Asia or India), may be at a lower price point than what a cloud provider can offer. You clearly want to purchase and invest in areas where the unit cost result is a slam dunk. As you can imagine, there are caveats everywhere. Older systems that have to be migrated or transitioned to the cloud will require an onboarding cost. This may be a one-time cost, but you may want to amortize the cost over several years to capture the true cost of this new architecture. Net new systems purchases (that go to the cloud) would not have this onboarding cost.

So before your cloud shopping spree, make sure that you know your own costs. And these costs change as a function of several variables. There are more variables not even listed here, so the burden is on the consumer to prepare for smart comparison shopping. Don’t be beguiled by low cloud prices until you understand your own internal/unit costs.