Cost of Server Ownership: On-Premise vs. IaaS
Take a good look at those servers sitting in that closed room at the end of your office hallway. They’ve probably given you a lot of good service during the last few years. Think of all the data you’ve processed and stored there, not to mention the applications that ran on them every day. Have you ever stopped to wonder how much time and money you’ve invested to keep those machines running? You might be surprised by the numbers if you did. There’s a lot of talk about cloud server solutions these days and you might be tempted to take the leap. But, before you make any kind of decision, you should have a clear idea of what you’re spending now and how it compares to the price of cloud solutions.
The first thing you have to do is look beyond the initial costs of an in-house solution vs. the monthly cost of the cloud. The real picture of what’s cheaper goes far beyond the cost of a new in-house server or an annual subscription to cloud servers or Infrastructure-as-a-Service. Look at ongoing costs instead. What are you really paying to operate, maintain and upgrade an on-premises solution over its lifetime (usually a five-year period)? What other costs are involved in a cloud solution? Only then will you be able to make a sound decision. Need to know the total cost of your infrastructure right away? Download our total cost of ownership tool here.
How to calculate total cost of ownership of servers
The best way to calculate the cost of ownership is to take a look at all your costs: direct, indirect or hidden. Here’s a breakdown, in case you’re wondering what we’re talking about. Direct costs are linked to any of the hardware required for an on-premises solution. This can range from your actual servers to the server room where you store them. It also includes electricity and HVAC (heating, ventilation and air-conditioning). On the other hand, indirect costs are related to the salaries you pay your System Administrator and any other IT staff member who maintains your hardware or fixes software bugs. And hidden costs? Lost productivity due to downtime is a good example.
How much does it cost to move to the cloud?
No matter which costs you want to analyze, our cost calculator tool can help. It evaluates all the factors involved in building your own solution and compares that with the overall cost of the cloud.
How much vCPUs, RAM and disk space do you need to run your operations? Using our cost calculator tool, we entered sample amounts of resources that most SMBs would use every month (2 vCPUs, 8GB of RAM, 512GB of disk storage). Then we played with the uptime target numbers to reflect a typical SMB situation. We looked at availability and what this meant for downtime hours each month. The numbers vary. Some providers offer 98.0% of availability, which equals about 14.4 hours of allowed downtime per month. A respectable on-premises solution is also around that previous percentage, so when you compare to switching to the Cloud, you can start with that data as your guaranteed uptime. On the other hand, other providers give their customers a service-level agreement of 99.9% of availability. This means only about 44 minutes of downtime a month. After all, downtime is a hidden cost for your business. When your site is down, your data is unavailable. In a 2011 study published by CA Technologies, researchers tried to evaluate the toll of downtime on the costs of businesses. Of 200 surveyed businesses across the USA and Europe, a total of $26.5 Billion USD is lost each year due to IT downtime. That’s an average of about $55,000 in lost revenue for smaller enterprises (Source). The higher the percentage of availability, the better uptime your site has and ultimately, the better it is for your business.
In our scenario, and using our tool, we took into account the recommended hardware refresh rate for an on-premises server (generally 3-5 years). As part of our price comparison for cloud servers, we set the refresh rate to 48 months. Most in-house servers would start to lose their ability to adapt to increasing workloads after four years. However, with a cloud server, you can scale your resources up or down to suit your needs. Finally, we entered another important indirect cost: the average annual salary for a system administrator or technical employee. For this example, we used an average number of $60,000. That number was rounded off from a researched by Payscale.com
The tool calculated that the average cost for this on-premises configuration would be $1,476.31 a month. In contrast, the monthly cost for a cloud server with the same configuration is $313.90. This translates into an average monthly saving of 79%. The total cost of ownership tool also displays tables and graphs which compare this on-premises solution to a cloud solution proposed by SherWeb.
Five-year price comparison
Let’s assume that you refresh your infrastructure every five years. You’ll buy your new server in the first year and as we mentioned, you’ll replace it in the fifth year. Our tool calculated that over this five-year period, a company would save an average of 79% in its IT budget by opting for a cloud solution.
Back to our calculations. In the first and fifth years of the cycle, your expenses include server installation, configuration, initial maintenance and support. But, if you have a cloud server, your staff would spend little to no time dealing with these tasks. That’s why in our example, the company saves 90% in the first and fifth years with a cloud solution. For years 2-4, the costs for both on-premises and cloud solutions are limited to maintenance and support. The costs linked to hardware, such as HVAC, aren’t necessary with a cloud solution. Consequently, the company saves up to 58% with cloud servers.
TCO: understanding the big picture
A number of key elements should be included in your decision-making process, such as system uptime, technical support, redundancy in case of power failure and the costs involved in refreshing your servers. Most companies replace their on-premises servers every five years. Wait any longer and you might regret it. It could be more difficult to find spare parts or do necessary upgrades. Or, your server might become too slow and inefficient to deal with spikes in demand. Electricity is also a major factor. As we mentioned earlier, power is a direct cost, and an important one at that! A recent article by ZDNet showed that in the U.S., it costs about $731.94 per year to run an average server. If you have several on-premises servers, that could translate into a big expense. Price is one thing, but it’s also important to factor in the value you’ll get on top of the price tag.
What other things should you consider? All the gravy that is provided by cloud servers that you don’t necessarily get with an on-premises solution. With Infrastructure-as-a-service, the datacenters hosting your solutions are usually better maintained, updated and upgraded compared with what you’re running in an on-premises environment. Next up is security. Most datacenters running cloud solutions are Tier 3+ and subject to stringent security regulations. In other words, your data will be the safest it can be. Your closest won’t even compare! We’ve talked a bit about hardware and software, but here’s the deal. The platforms used in cloud solutions are regularly updated to conform to industry standards. That’s another thing your business won’t have to worry about. You don’t even need to pay the SysAdmin doing the work, it’s all included in your price. And if you have any questions? Most providers offer free technical support.
So, crunch those numbers. If you don’t understand what your five-year TCO looks like, you’ll never be able to make a valid comparison of in-house vs. cloud solutions. Our TCO calculator below will help you get a grasp on your numbers.
Want to find out more about the total cost of ownership for cloud servers? Download our free cloud cost estimator here. Do the math yourself and make the right decision for your business!