Hardware Infrastructure Global Viewpoint – December 2015

Calculating TCO: Cloud versus on-site solution

As we enter 2016, one of the larger decision issues managers and technical folks face is the selection of server technology. That often means choosing between an on-site and cloud solution. Deciding on a ‘best’ solution for your facility requires some research. There are, however, at least six key costs to consider when look for a storage product or service.

As a media professional, you understand that vendors will push their own solution. If you talk to a hardware server vendor, she’ll try and sell you on installing and hosting your own storage. Likewise the cloud people have the perfect fit to your needs.

First, comparing local server/storage versus a cloud solution is not a direct-one-to-one parallel. There are multiple parameters, which can be examined. Only you can decide which ones may be more appropriate for your circumstances. Let’s begin.

Power costs

More than one server company has told me that power costs “don’t matter”. And for some users maybe they don’t. At some media companies, the costs of technical power may not even be an engineering budget item—so who cares?

Even if an engineer adds all the server power draws together, he may not consider what it costs to cool all those racks of servers. While today’s servers are efficient, even solid-state servers require CPUs, dual power supplies, supporting RAID arrays, fans and other components. All of these generate heat, which translates into the invisible server cost--HVAC.

An article from ZDNET showed that the average yearly cost of running an in-house server, including both direct power and cooling costs, as $731.94. If you have multiple servers, as would be the case with media production, use the article to calculate your own annual electrical power costs. It’s likely to be much higher than you thought.

The graph below shows an example tool to help calculate TCO.

An interactive TCO calculator makes it easier to analyze the total cost of ownership for an on-premise solution versus a cloud Software-as-a-Service (SaaS) system. In this example the TCO Calculator compares a generic line of business app server on-premise vs an Azure cloud virtual machine. While the yearly recurring costs up to year four are similar, note the spike that year five introduces. That extra $6190 in year five is an average aggregated cost of new hardware, software, labor fees, and related costs to replacing one physical server at end-of-life.

Bandwidth is not free

I recall from years ago, Avid’s Al Kovalick told me that servers would be key to future media production. He noted at that time that controlling the up and down bandwidth costs were important to a successful implementation. “But that will be solved,” he said.

He was of course right. Especially for office tasks, off-site storage, virtualization, SaaS and even disaster recovery are superbly handled by cloud solutions. Likewise, email and office applications do not require large and interactive bandwidth, so bandwidth is relatively inexpensive.

For media applications, bandwidth is key. Video production and playout require large reliable pipes and these can be expensive. For any accurate TCO, you need to calculate how much bandwidth will be needed and what it will cost.

Also, consider the download costs. Some cloud vendors will let you “seed the cloud”, move your content into the cloud, for free—or at artificially low costs. While that’s great, remember the data is of no use to you unless you can get that content back. And that’s where the cost meter really begins to run.

Amazon’s EC2 includes free 30 GB of Amazon Elastic Block Storage in any combination of General Purpose (SSD) or Magnetic, plus 2 million I/Os (with Magnetic). You get 1 GB of snapshot storage, all packaged with a total of 5GB of free storage. Additional storage is available with the 1 TB / month level costing $0.03 per GB. A full Amazon EC2 pricing sheet is available here.

Microsoft has an on-line pricing calculator. It shows again that uploads are free. It’s when you want that data back that the clock begins to run.

Depending on your location, up to 500GB in downloads from the Microsoft Azure cloud will cost from $0.05 to $0.16 per GB. Up is free, down costs you.

Another point to remember. While it’s great to move thousands of hours of content up into the cloud--all free. But what happens if you later decide to change cloud vendors? The cost of moving those thousands of hours back to earth could be significant.

You may be surprised at how rapidly the total costs climb once both upload, download and storage are totaled.

One possible resource to consider when calculating needed bandwidth is this on-line calculator from Bandwidthpool.com. While it is more focused on traditional office applications, the site has other resources, which may be of interest and help with any TCO (Total Cost of Operations) calculations.

Server replacement costs

If you are still leaning toward a local storage solution, include the replacement and maintenance costs in your TCO calculations. Experts say a hard drive’s lifespan is three to five years. One resource said expecting longer life from a drive, say seven to eight years, is asking for trouble.

“…[when you] stretch a server lifespan so far, you're usually entailing risk of unexpected failure during the migration to a new system, or increasing the risk of paying for more costly migration fees because your software dove into a much further obsolescence than it would have otherwise had at a decent five year timespan.”
Derrick Wlodarz, ZDNET

Knowing that broadcasters try to squeeze every minute of life from technology, there may be debate on the life of a server. The above writer makes the point that a realistic drive life must be included otherwise the TCO calculations are misleading. Wlodarz says, “Even in situations where staying in house may be cheaper than going to the cloud on a monthly basis, your five year replacement/upgrade costs may be so hefty due to the size of the hardware needed or licensing entailed, that going to the cloud may still be the better long-term option.”

Cost of downtime

Chief engineers are quite familiar in calculating downtime—usually referred to as being “off-air”. Every minute the transmitter is off, is another mark against the engineer. IT folks may be less focused on downtime because their systems are less tied to an audience.

However, this calculation needs to be made if a clear picture of cost of operation is to be developed. What does an hour of downtime cost your business? One study of 200 business by CA Technologies showed that $26.5 Billion was lost each year due to IT downtime. Breaking the data into three different sizes of companies showed that a one-hour IT downtime resulted in $55,000 in lost revenue for a small-sized business, a $91,000 loss for medium-sized businesses and $1 Million in lost revenue for a large business.Your mileage may vary.

Broadcasters will be able to calculate downtime costs to the penny. If you need a guide, this Oracle calculator may help.


Given all these calculations, we can now begin to calculate our own TCO. Figure 2 below combines all the cost areas we discussed above and computes TCO out to eight years. Some facts immediately become clear.

Comparing an eight-year lifespan on-site solution with a managed cloud solution. One immediate variable becomes obvious. The hardware solution starts out more expensive than the cloud option--and never stops being more expensive than the cloud. Note again the five-year server replacement costs.

Comparing an eight-year lifespan on-site solution with a managed cloud solution. One immediate variable becomes obvious. The hardware solution starts out more expensive than the cloud option--and never stops being more expensive than the cloud. Note again the five-year server replacement costs.

An in-house storage solution has far higher start-up costs than does a cloud solution. After all, it requires the purchase of both hardware and application software. To that one must add installation, backup software, virus protection, monthly patching and maintenance and power/HVAC costs. All this assumes you have qualified staff to perform the required duties.

The cloud solution is lower from day one. Even more important, that lower operating cost continues through the life of the study, eight years.

In this example, after eight years, the on-site server solution cost is about $68,000. The cloud solution cost comes in at about $30,000, a 50-percent savings from owing one’s hardware.

The point of this article is that unless engineers and IT professional develop the accurate cost data, they cannot make a meaningful cost comparison between a cloud and on-site storage solution. One solution is never always "better" than the other. It depends.....

As experienced NAB attendees know, all that hardware looks wonderful under the Las Vegas lights. But when it comes to buying technology, the adage “What goes on in Vegas stays in Vegas” does not apply.

Editor's note: This article is based on a more detailed presentation by Derrick Wlodarz. It can be found here.

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