Cloud concept

The economics of public versus private cloud

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21 October 2016

It is a debate that has raged on for years: which is cheaper, public or private clouds?

A new report from 451 Research finds that two of the most critical factors that influence the cost of a public versus a private cloud deployment are an organisation’s ability to efficiently manage infrastructure and utilisation of hardware resources. Generally speaking, if any organisation has the expertise to manage a large number of servers at a high level of utilisation then on-premises, customer-managed private clouds can have a total cost of ownership (TCO) advantage compared to public clouds. For smaller environments, or any sort of variable workload demand, public cloud is a more attractive financial option, 451 Research’s Director of Digital Economics Owen Rogers reports in “The Cloud Price Index: The great public vs private cloud debate.”


451 finds that labour efficiency and utilisation of resources are two critical factors for determining if a public or private cloud is most cost effective (Image: IDGNS)

Pros and cons
Public and private IaaS clouds each have their pros and cons. Private clouds come with an inherent control of the infrastructure, which gives some security-conscious and regulatory-sensitive customers peace of mind. On the other hand, true private clouds that allow for virtualised resources to be self-provisioned by users can be difficult to set up and manage. Public clouds, meanwhile, provide access to an almost infinite amount of infrastructure resources without any upfront investment required, and the ability to use cutting-edge technology available first from public cloud vendors. The perceived lack of control and security can be a big turn off for some customers though.

Financial comparisons of a public versus private cloud are another way to consider the issue. To determine TCO, Rogers recommends that an organisation consider how large of a cloud deployment they will have, how efficiently they can manage it, and how much it will be utilised. A key measurement in determining efficiency of a cloud is the number of virtual machines managed per engineer. Generally speaking, if an organisation is able to achieve about 400 virtual machines under management per engineer, then a private cloud can be a more attractive financial option compared to a public cloud. If the organisation is not able to reach that efficiency level, then public cloud can be more efficient.

Resource utilisation
Another key consideration is utilisation of those resources. If the infrastructure is only used to about 50% of its capacity, then it requires a cloud administrator to manage up to 1,000 VMs each to achieve a TCO advantage compared to public cloud.

“It is possible for self-managed private clouds to be cheaper than public cloud, but utilisation and labour efficiency must be relatively high,” Rogers finds.

If organisations do pursue a private cloud option, Rogers also analysed an open source OpenStack option compared to proprietary offerings from VMware and Microsoft. Generally speaking, if an organisation has high utilisation of resources and less than 400 VMs per engineer, then VMware and Microsoft have a TCO advantage. If an organisation has expertise to manage more than 400 VMs per engineer, then OpenStack can be a more attractive option. Rogers recommends in most cases that using a commercial distribution of OpenStack is more financially advantageous compared to a do-it-yourself approach of using the open source.

Labour costs
Another metric to consider in the OpenStack versus proprietary private cloud decision is the cost of labour. Rogers estimates that an OpenStack engineer average salary is $140,000 (€128,581) compared to that of a VMware or Microsoft administrator’s $100,000 (€91,911). New training and certification programs from OpenStack should increase the talent pool of available open source cloud engineers, which could even out the salary discrepancies, Rogers also notes.

Public clouds have their advantages. Most notably, public clouds are the least wasteful deployment option because they offer on-demand provisioning of resources. This frees the customer from investments or capacity planning exercises that are critical to a private cloud deployment. Cloud vendors do offer customers discounts for committing to longer-term contracts of use, however.

Rogers warns that a private cloud deployment can turn into a financial quagmire if utilisation and efficiency rates are not achieved. It is difficult to predict how many engineers it will take to manage a fleet of VMs and how well utilised it will be within an organisation.

“These (unknowns) are real risks – get them wrong, and a black hole effect can make resources disproportionally expensive,” Rogers notes. There are other X factors to consider as well, including cost of migration, existing infrastructure investments, in-house expertise of systems management and potential training.

TCO is also just one factor, he notes. “Often the security and control inherent in private clouds outweigh financial considerations,” Rogers reports, adding that a long-term strategy should be considered to determine what the future path of the company is and which platform offers the key features most important to them.


IDG News Service

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