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AWS Price Drops: More than Just a Sweet TCO Treat

Last week, AWS announced its 26th price drop, which may have you wondering what this trend really means long-term. In the short term, it means that Amazon EC2 customers with Linux or UNIX reserved instances will see their prices decrease by up to 27%. And this is hardly the only AWS price reduction we’ve seen recently. In early February, Amazon dropped its data transfer pricing significantly across nine AWS regions lowering the cost of data transfer between regions from 26% up to 83% depending on location. February also saw AWS reduce the price of deploying a relational database with automated failover from between 15% and 32%. Wow, that’s a lot of cost cutting!

But while these announcements are great by themselves, it’s important to know that price drops aren’t just a market trend. Price reductions over time are part of what makes cloud computing so attractive, and they’re also why cloud TCO is so revolutionary and compelling. Our customers understand that the cloud will bring them a lower overall TCO, but most are happily surprised when it turns out they were only looking at those savings from one perspective. Cloud TCO is so fantastic because it’s multifaceted. You can save money in so many ways.

First and foremost is the basic cost model. Today you’re buying infrastructure in big boxes and paying for everything up front no matter how much you actually use. CPU cycles, storage foot print, even facilities charges, these are all fixed costs in the current model no matter the utilization. But the cloud lets you access those resources by the hour. You’re paying for infrastructure only when you use it, and you can stop paying as soon as you’re done. That’s the cloud’s number 1 differentiator when it comes to infrastructure usage, and from a TCO perspective, that’s huge all by itself.

But it’s even more significant when you consider that the cloud also brings more freedom and agility to your business. With in-house infrastructure, if you need to add extra server capacity, you’re buying X number of new servers, namely however many you need to service peak demand. Period. Then you’re waiting for them to arrive and get installed and configured. Again, period.  That’s pretty much it. But in the cloud, (1) you’re paying for those servers only when you use them, (2) you can use them immediately and from any location, and (3), you’re paying only what the cloud provider needs to charge based on the overall resources at its disposal.

Number 2 means a big uptick in your ability to respond quickly to new needs or opportunities, and that always means more money. Number 3 means pricing based on economies of scale: The bigger a provider’s cloud, the lower your price should be. This is the root of why cloud price decreases aren’t a trend, they’re simply a part of cloud computing. It’s the nature of a cloud to grow and refine its services, and that process will simultaneously bring down customer cost for a couple of reasons.

For one, growth means customers get to take advantage of economies of scale when it comes to purchasing and using IT infrastructure. As clouds go, AWS is a behemoth! During his keynote at the recent Amazon re: Invent 2012 conference, Andrew Jassy, senior VP for AWS, remarked that every day AWS is adding enough new infrastructure to run all of Amazon.com circa 2003 – and Amazon was already a $5 billion company then! That’s massive in terms of economies of scale. Even large companies have trouble competing with that kind of volume; but every AWS customer can leverage that scale immediately and will see it lower their TCO over time.

Size also separates the cloud’s business model from that of traditional IT.  Because of its size, AWS can function in a high-volume, low-margin model, which is something traditional IT infrastructure providers just can’t do. Network hardware, servers, management, datacenter facilities, these things all work in a fixed cost model if you’re buying and running them in-house. Only the cloud lets you harness them on a pay-as-you-go basis and with complete flexibility to use only what you need, when you need it, and from where you need it. The more infrastructure a cloud provider has and the more sophisticated that infrastructure, the less they need to charge their customers to use it.

For AWS customers, you’re paying less as you go all the time. AWS has been consistently dropping its prices as soon as it can afford to do so. That’s how clouds stay competitive. We tell our customers to expect a 12.5% price decrease per year when using AWS and so far, we’ve been right. Track these cost drops back for the last several years across AWS, Azure, Google and other cloud providers, and it’s undeniable that the cost of cloud computing has gone down dramatically over time. For cloud services to be competitive not just against traditional infrastructure but also against each other, increasing infrastructure sophistication and keeping costs at a minimum is the only way to succeed. And AWS is succeeding in a big way.

If you haven’t tried the AWS TCO Calculator yet, it’s available online @ http://aws.amazon.com/tco-calculator.

-Jeff Aden, President

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Benefits of Amazon Web Services (AWS)

Operational efficiency and reducing costs continue to be critical issues for IT leaders. Common concerns include:

  • Overspending on hardware and storage capacity. IT leaders want to be able to ensure high-availability during periodic and seasonal peaks, but that often requires an overinvestment in infrastructure to ensure capacity can meet demand. Excess capacity causes overspending and waste.

 

  • Business leaders want IT to help preserve cash. Traditional capital expenses for IT infrastructure requires an upfront investment. Because the capability of hardware and software increases rapidly, making large, up-front capital investments in assets that quickly become outdated does not make good business sense.

 

  • A non-standardized IT environment and platform is expensive from a  security, support and training perspective. Thus, IT departments are often      forced to spend the majority of their time and budget performing non-differentiating activities. IT leaders want their teams to spend more time adding value.

 

Based on the above, technology executives currently face significant challenges with their existing IT infrastructure while the speed of change of the market is creating ongoing pressure to adapt and deliver. In response, cloud computing providers like Amazon Web Services (AWS) are enabling companies to consume shared computing, storage and other resources faster and more efficiently versus building and operating their own IT infrastructure. Below are the key differences and benefits of AWS versus traditional, physical IT.

  • Cost-Effective – Consume only the amount of compute, storage and other IT resources needed. An advantage of using AWS is no long-term commitment, minimum spend or up-front investment is required.

 

  • Elastic and Scalable – Another AWS benefit is the ability to quickly add and subtract resources to applications to meet customer demand and manage costs. Avoid provisioning resources up-front for projects with variable consumption rates or short lifetimes.

 

  • Experienced – Leverage Amazon.com’s 15+ years of experience delivering large-scale, global infrastructure. Another benefit of AWS is Amazon continues to hone and innovate its infrastructure management capabilities and skills.

 

  • Flexible – Use familiar architectures, databases, operating systems and programming languages. Improve overall productivity and time to market without the need for IT to learn new skills.

 

  • Security – An advantage of AWS is it builds and delivers its services in accordance with the industry’s highest and strict security best practices. AWS conducts regular and thorough audits to demonstrate the security of its infrastructure.

 

The benefits of AWS and cloud computing overall are significant. According to Gartner, between 2013 and 2015, infrastructure-as-as-service (IaaS) will grow from $8.1B to $15.5B (91%); platform-as-a-service (PaaS) will grow from $1.2B to $1.8B (50%); and software-as-a-service (SaaS) will grow from $14.5B to $22.1B (52%). Thus, the total market spend for cloud computing will increase from $23.8B to $39.4B (66%). Cloud computing is here. Leveraging the benefits of AWS can dramatically increase both the effectiveness and efficiency of your company.

If you have additional questions, or need help getting started with AWS, contact us.

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