Fuzzy Math in the Cloud – TCO of Cloud vs. Internal IT

October 13, 2009 by Brian Wolff

As cloud computing and infrastructure-as-a-service (IaaS) continues to take hold in all size business, I’m beginning to see more great discussions about the true cost of Internal IT vs. the Cloud.  Bernard Golden (post) and Drew Robb (post) have each written complete and thorough analysis of the cost of the internal data center and/or storage.
This warms the cockles of my heart, because three years ago when we started BlueLock, virtually every opportunity that went down in flames, did so because my monthly fee looked two or three times larger than the prospect’s server cost.  During the sales process, we dutifully built a spreadsheet that talked about all the costs involved – hardware, software, maintenance, people and facilities charges and then methodically demonstrated how our TCO was consistently a third of their TCO when every cost in their data center was accounted for.  Predictably, these companies dismissed my cost vs. theirs as a convenient way to defend their turf and maintain their sprawling server farms and army of people.  Those days are over…

So what’s changed?   Obviously a lot.  The financial meltdown and recession caused many businesses to rip costs out just to survive.  Those cuts meant no new capital, fewer people and the necessity to get more done with smaller operational budgets.   Those just happen to be three of the most compelling value drivers of cloud computing and IaaS.  The other thing that has changed is that CEOs and CFOs are now involved in making the decision to transition to the cloud. 

This is no longer just an IT decision, it’s a business decision and the same scenario plays itself out over and over again – cash wins every time (as in cash preservation via lower cost) – which brings us back to TCO.  Now that the CFO is involved in the calculation of the TCO, companies are much more likely to take a broader view what it really costs to own and maintain their own infrastructure. 

I’d like to share just one example:   I had a discussion with a CFO the other day who was downsizing his office to save money.  One of his major constraints was that the new space had to have a room suitable to be a server room.  Not only that, he also was attempting to perform a calculation on the size of the air conditioner and the custom AC work that needed to be done so that the servers could be cooled.  When we got done talking about cloud computing, we had come up with five figures worth of monthly cost that would likely have escaped a TCO calculation performed by IT.   Sound scary?  Continue reading…

In the end, when all of the costs of housing and maintaining the servers were calculated by the CFO, the IT support number was 2 times the cost because it included much more than just the costs of the servers and the people to run the servers.  Ironically, virtually all of the costs that were included in the “new math” (square footage, AC, maintenance on power, network, cooling, additional people beyond IT) would be eliminated if the company decided to put their applications in our managed cloud.  Yes, that means his company could save HALF (or more) if they moved to the cloud rather than using his own space for his own servers and people.

If you’d like to hear more stories about companies like this, give me a call or drop me a note at bwolff@bluelock.com.

Original posts I referred to:

Bernard Golden in “The Case against Cloud Computing” Part 4 TCO of Cloud vs. In-house servers"

What Storage Really Costs
by Drew Robb