Comparing Financial Damage: Traditional versus Cloud

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How much does a data center cost to run? It depends on these things:

✓ How big it is. How many virtual servers? Is the data center massive? How much square footage; how many servers? Does it cost $5 million a year to run?

✓ Where it is. How much does office space cost. What about cost of staff? Is the data center close to inexpensive power sources?

✓ What it’s doing. Does the data center protect sensitive data? What is its kind of business? What level of compliance must it adhere to? Clearly, you have many ways to look at the situation.



Traditional data center
Although each data center is a little different, the average cost per year to operate a large data center is usually between $10 million to $25 million. Where’s the bulk of the money going? This might surprise you.

✓ 42 percent: Hardware, software, disaster recovery arrangements, uninterrupted power supplies, and networking. (Costs are spread over time, amortized, because they are a combination of capital expenditures and regular payments.)

✓ 58 percent: Heating, air conditioning, property and sales taxes, and labor costs. (In fact, as much as 40 percent of annual costs are labor alone.)

The reality of the traditional data center is further complicated because most of the costs maintain existing (and sometimes aging) applications and infrastructure. Some estimates show 80 percent of spending on maintenance.

Before you conclude that you need to throw out the data center and just move to the cloud, know the nature of the applications and the workloads at the core of data centers:

✓ Most data centers run a lot of different applications and have a wide variety of workloads.

✓ Many of the most important applications running in data centers are actually used by only a relatively few employees. For example, transaction management applications (which are critical to a company’s relationship to customers and suppliers) might only be used by a few employees.

✓ Some applications that run on older systems are taken off the market (no longer sold) but are still necessary for business.

Because of the nature of these applications, it probably wouldn’t be cost effective to move these environments to the cloud.



Cloud data center
In this case cloud data centers means data centers with 10,000 or more servers on site, all devoted to running very few applications that are built with consistent infrastructure components (such as racks, hardware, OS, networking, and so on).

Cloud data centers are
✓ Constructed for a different purpose.
✓ Created at a different time than the traditional data center.
✓ Built to a different scale.
✓ Not constrained by the same limitations.
✓ Perform different workloads than traditional data centers.

Because of this design approach, the economics of a cloud data center are significantly different.

To create a basis for analyzing this, we used figures on the costs of creating a cloud data center described in a Microsoft paper titled “The Cost of a Cloud: Research Problems in Data Center Networks” by Albert Greenberg, James Hamilton, David A. Maltz, and Parveen Patel.

We took estimates for how much it cost to build a cloud data center and looked at three cost factors:
✓ Labor costs were 6 percent of the total costs of operating the cloud data center.
✓ Power distribution and cooling were 20 percent.
✓ Computing costs were 48 percent.

Of course, the cloud data center has some different costs than the traditional data center (such as buying land and construction).

This explanation of costs is designed to give you an idea of where the difference between the traditional data center and the cloud data center are. The upfront costs in constructing cloud data centers are actually spread across hundreds of thousands of individual users. Therefore, after they’re constructed, these cloud data centers are well positioned to be profitable because they support so many customers with a large number of servers executing a single application.

Source of Information : cloud computing for dummies 2010 retail ebook distribution

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