The Cost of Cloud Computing

May 30, 2010

Yes, I know, price isn’t everything, it’s not the only thing, but enterprise computing costs do matter!  If you don’t think so, then just imagine the conversation you will have with the C-level/VP/Director/Manager person when you go in and ask for X percent (say 10, 20, 30 or more) of this year’s Cap-X budget to fund the hardware  for your latest and greatest project (and don’t forget to include the support costs).  Oh yea, that will be a ‘fun’ conversation.

Cost of Cloud Computing Resources
Late last year (2009) Amazon, Google and Azure lowered their published pricing for reserved computing instances (computing cores).  Amazon’s rate for a single CPU, continuously available cloud computing instance was little as 4 cents an hour (effective hourly rate based on 7×24 usage) for customers that sign up for a three year contract.
Single year contract rates were about 20% higher.  Pricing for on-demand instances (no upfront payments or long-term commitments) was about two and a half to three times the three year contract rate.
A rough calculation says that a cloud data center of 10, single core servers (at the three year contract rates) could be operated around the clock under $0.50 an hour, or just under $3,500 a year (that includes servers, data center facilities, power, cooling, and basic operations). That’s about $350 per server per year – pretty impressive!

Commoditization of Cloud Computing
And if the costs of cloud computing weren’t low enough Amazon announced pricing for EC2 ‘spot instances’.  This pricing model will usher in the beginnings of a trading market for many types of cloud computing resources: support services, storage, computing power, and data management.
Under the old model you had to pay a fixed price that you negotiated with a bulk vendor or a private supplier.  Now in the new spot market you can look that the latest price of available cloud capacity and place a bid for it.  It your bid is the highest, then the capacity is yours. Currently this is available from Amazon’s EC2 Cloud Exchange.