ISG Cloud Comparison Index™: June 2015

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, often specific to each cloud provide, 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.
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 service levels. The trad?
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 often the first ste 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 opremises 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
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
Application Server
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.
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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.
Figure 1: Average price of public cloud services vs. internal IT
Monthly Configuration Cost (US $)
$1,200
Public Cloud
Avg.
$1,000
$800
Internal IT
$600
$400
$200
$0
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Source: ISG Research
Average Compute Instance Utilization
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
$1,200
Public Cloud
Ranges
$1,000
$800
Internal IT
$600
$400
$200
$0
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
Average Compute Instance Utilization
0%
Source: ISG Research
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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 application workload to the next can be quite significant.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.
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Assumption and Notes
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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, 2015. 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.
Visit AccessISG™ Online for more sourcing information, insight and tools.
Click the envelope to contact us or go to http://info.isg-one.com/ContactUs.
CONTACT US
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.
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