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How to Calculate the Total Cost of Cloud Storage Published: 18 October 2013

Analyst(s): Gene Ruth, Pushan Rinnen, Arun Chandrasekaran

Cloud storage economics depend on more factors than just the cost per GB to be an attractive alternative to on-premises storage. Without a comprehensive business case, IT leaders will make mistakes and waste money.

Key Challenges ■

Data growth continues to challenge IT operations. For example, a 35% growth rate per year requires a doubling of on-premises storage over a three-year period.

■

A large percentage of data handled by IT operators (e.g., archive, backup and file shares) is often inefficiently stored on high-performance storage, and thus wastes valuable capacity that could otherwise be freed up for other uses.

■

Coordinated data delivery and protection within branch offices can be expensive using conventional on-site storage, and is prone to data loss.

Recommendations ■

Include hybrid cloud storage environments as an appealing alternative to storing unstructured data in low-demand/performance situations when dealing with high data growth.

■

Apply distributed cloud storage integrated environments using cloud storage gateways as an alternative and cost-effective method to support branch offices.

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Include total implementation and administrative costs when comparing on-premises storage to hybrid cloud storage solutions to expose any hidden costs. Consideration for operations, staffing and skills should be included in any cost comparison.

■

Prepare for cloud failure by requesting contractual guarantees with financial penalties from cloud vendors for the availability of data, loss of data, and time to migrate or copy data from a bankrupt cloud storage provider to another or to your own in-house storage.

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Strategic Planning Assumption By 2018, 80% of enterprise data centers will place low-performance unstructured data into public cloud storage, leaving only business-competitive capabilities on-premises.

Introduction This research provides advice on what to consider when calculating the cost of public cloud storage (infrastructure as a service [IaaS]), compared with traditional on-premises storage for an enterprisescale IT infrastructure. Examples of cloud storage referenced here include Amazon Simple Storage Service (Amazon S3), Microsoft Windows Azure Blob and ATT Synaptic Compute as a Service cloud storage. Simply comparing the purchase cost (cost per GB) of an on-premises storage infrastructure to a cloud storage solution is insufficient to make a well-informed decision. IT organizations must dig deeper to uncover the real economic value when comparing the two options. Considerations should include the impact on operations, investment requirements, resource utilization, skill and head count requirements, and alignment with other IT initiatives. In addition, any use case analysis must distinguish business-competitive IT workloads from routine data manipulation in order to identify and prioritize cloud-eligible workloads and use cases. And importantly, although difficult to quantify, the risk of a cloud storage service provider failing must be considered, along with any Plan B options that might be necessary. Additionally, appropriate exit SLAs must be built into the cloud services contracts, should things go wrong.

Analysis Analyze All Explicit and Hidden Costs During the Planning Phase Customers need to carefully factor in all costs when comparing on-premises storage with cloud storage, as there are a number of nonobvious costs on both sides. As a reference, for an enterprisescale environment, Gartner calculates that the annual total cost of ownership (TCO) for 1TB of onpremises storage is $3,879 (see "IT Key Metrics Data 2013: Key Infrastructure Measures: Storage Analysis: Multiyear"). Although the $3,879 per TB metric is interesting, most cloud storage projects start on a smaller scale and require more explicit examination to validate a TCO comparison. For example, public cloud storage deployments often address only a fraction of an IT storage environment, and depend on additional on-premises hardware/software, such as cloud storage gateways and require client-side encryption key management. In addition, customers should consider the additional costs involved in procuring enterprise-class support from public cloud providers that can guarantee escalation response time. Customers desiring more robust disaster recovery in the cloud should include the costs of cross-regional replication (offered by the cloud provider) and, potentially, physical equipment exchanges for fast recovery activities. Often-overlooked costs in on-premises storage are the infrastructure costs associated with rack space, electricity and cooling costs — all of which can be a significant portion of operating Page 2 of 9

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expenditure (opex) costs in a data center. Customers should also consider backup and disaster recovery costs (as outlined in Figure 1), including, for example, backup application and replication license fees. The IT staffing costs and implementation and training costs also need to be considered against the backdrop of existing workforce skills in the IT organization. Refer to Figure 1 for items to consider when comparing implementation and operational costs. Figure 1. Key Considerations When Determining the Value of Moving to a Hybrid Cloud Storage Environment

On-Premises Acquisition Costs

Operational Costs

Redundancy Costs

Others

Public Cloud Storage

• Acquisition of storage hardware, including software licensing • Management software • Replication software

• Cloud storage gateways • Connectivity infrastructure

• Space/colocation • Electricity, cooling

• On-demand capacity • Egress/ingress bandwidth • Transaction costs (get, put, etc.)

• Annual maintenance and software • IT workforce

• • • •

• • • • •

Equipment costs Software licensing Maintenance Additional bandwidth WAN optimization controller (optional) • Space/colocation • Electricity/cooling • Cost of testing

• Cross-region disaster recovery and/or backup to physical media • Cost of testing

• Implementation • Training • Recurring migration costs during every upgrade • Depreciation

• • • •

Cloud provider support upcharge IT workforce Service vendor management Encryption key management

Implementation Training One-time migration Contract management

Source: Gartner (October 2013)

Build a Business Case That Considers Nontangible Benefits Cloud storage (IaaS) promises some unique benefits, such as business agility, better capacity utilization and scalable capacity at lower incremental costs that are tough to replicate in an on-

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premises model. Data storage in the cloud often enables enterprises to quickly launch applications (e.g., file sync and share and endpoint backup) by leveraging on-demand compute and software (SaaS) that are often delivered by the same public cloud provider. Organizations are also able to distribute and monetize content more easily through use cases, such as global content distribution, or analytics that can be more effectively rolled out in a public cloud. Arguably, use of public cloud storage reduces vendor lock-in by lowering the switching costs between vendors. Most on-premises deployments have substantial technical (through usage of proprietary software features), operational (through prepaid maintenance) and migration costs that tend to favor a continued relationship with the incumbent storage vendor. In contrast, hybrid cloud storage (a combination of on-premises and cloud storage) is less dependent on proprietary implementations and provides flexibility in mixing capital and opex. Some lock-in does occur when using gateways, but the scope and scale are much less than the on-premises alternative. This allows procurement teams to leverage discretionary opex budgets for new products and services that are less constrained by incumbent vendors and their proprietary implementations. Given recent price reductions (e.g., Amazon lowered storage costs by 25% in November 2012), the public cloud providers have been more aggressive than on-premises vendors in lowering storage prices and passing on the cost-benefits to customers. With growing competition, public cloud storage is certainly turning into a buyer's market, whereas, in comparison, the competitive dynamics in the on-premises storage space have changed little. Although the outlook continues to be positive for cloud storage, compared with the existing conventional hardware storage market, it has a long way to go to establish credibility for usage with enterprise-class, high-availability workloads.

Emphasize Workforce Productivity Gains Undeniably, workforce productivity gains through public cloud storage can be immense. Operational tasks, such as handling on-premises tape backups, can be eliminated, and configuring and provisioning storage systems will be automated in the public cloud. The convergence of storage automation tools, server virtualization, converged infrastructure and hybrid cloud storage will fundamentally change the role of a storage administrator in an enterprise. Not only will the skills of storage administrators evolve to focus more on governance and data stewardship, but also the amount of data managed by a single storage administrator may increase manyfold with the adoption of hybrid cloud storage. Once data is in the cloud, the premise is that the cloud provider owns data protection, and therefore, the conventional backup and disaster protection schemes move off-premises with the consequent relief in staffing, skills and software/hardware expenses. If this is not true, or a customer is not comfortable with a cloud storage provider's credibility, then cloud storage is a nonstarter. Recent Gartner IT metrics for storage indicate that, in 2012, the average raw TB managed by a fulltime equivalent (FTE) was 181 for on-premises storage. FTEs perform functions such as operations/ maintenance, technical services, process management, service administration and IT/facilities management related to information infrastructure. By moving data to the cloud, organizations can reduce or even completely eliminate tasks such as physical management of disk arrays/tape systems, asset management and facilities management. Also, by moving data assets into cloud Page 4 of 9

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storage, the administrative overhead of related backup and disaster recovery can be greatly reduced or eliminated. Once data is in the cloud, the service provider becomes responsible for data protection and likely will be chosen because of its ability to fulfill that responsibility. Thus, with the absence of on-premises infrastructure management and all that it entails, the TB/FTE may no longer strongly correlate and may lose its meaning.

A Three-Year TCO Comparison: On-Premises Versus Public Cloud Today, cloud gateways are essential to the adoption of public cloud storage; they optimize WAN bandwidth, and encrypt, deduplicate and compress the data. One common use case of cloud gateways is to replace local file storage in branch offices and small or midsize businesses, and to eliminate local backup and remote vaulting in the same process. Because primary storage arrays tend to have a three-year life cycle, we created a simplified three-year TCO scenario to understand the main cost components of on-premises deployment versus public cloud deployment. We assume that a branch office or an organization has 30TB of unstructured file data in its production environment and that file storage is growing 30% per year. Since Windows Server 2012 and other NAS systems have embedded deduplication capabilities, we assumed that the on-premises deployment is using the deduplication capability to reduce on-site storage cost. For simplicity reasons, we used a 3:1 deduplication ratio for both the on-site deployment and the cloud gateway. In terms of local backup, we assumed the organization uses a standard disk backup solution with 3:1 deduplication (either from the backup software or a deduplication appliance). The cost per GB assumptions for the on-premises deployment are estimates based on our synthesis of various data points in the Gartner Technology Planner database. Table 1 illustrates the TCO comparison. The cloud deployment has about 41% cost savings in a three-year period. In this example, almost all cost savings come from the elimination of local backup and backup replication. There are two significant sacrifices to this replacement, however; they are the speed of recovery and the lack of recovery points. The local backup in the on-premises deployment provides fast restore over the LAN and speedy business continuity. In contrast, the cloud deployment will not have such fast local recovery, because it doesn't 'have local highavailability functionality if the entire gateway is down. Cloud mirroring and replication typically do not preserve recovery points the way backup software does and, as a result, the cloud deployment either has to depend on in-cloud snapshots or cannot restore deleted or corrupted files. Not all cloud gateways can create cloud-based snapshots, so clients are recommended to verify this capability before committing to a purchase. Three vendors that offer snapshots are Ctera Networks, TwinStrata and Microsoft (StorSimple).

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Table 1. Three-Year TCO Comparison for On-Premises File Storage Versus Public Cloud Storage Deployment Cost per GB

Initial Capacity (TB)

Footprint After Deduplica-tion (TB)

Three-Year-End Storage Capacity (TB)

Storage Utilization Rate

Total Storage Needed for Three Years (TB)

Total Cost for Three Years

On-Premises Storage system

$1.80

30

10

291

70%

41.4

$74,571

Local backup cost (software and hardware)

$2.00

30

10

29

80%

36.32

$72,600

Backup replication to another site

$2.00

30

10

29

80%

36.3

$72,600

Total on premise cost

$219,771

Hybrid Cloud Cloud gateway Public cloud storage

$2.004

30

10

29

90%

32

$64,444

$0.1/per month

0

10

29

100%

29

$64,559

Total Hybrid Deployment Cost3

$129,003

Cost Savings From Cloud Deployment

$90,768 (41% less)

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1

Assuming 30% annual growth in storage capacity. Assuming a deduplication appliance is used that has deduplicated capacity that is the same as the production capacity for three-month backup retention. 3 Public cloud usually replicates data to two data centers for high availability at no additional or very low cost; customers often remove local backup by using in-cloud snapshots or foregoing the benefits of recovery points. 4 Assumes an outright purchase of the gateway. In some cases cloud providers offer a gateway as part of the capacity service charges.

2

Source: Gartner (October 2013)

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Note that the cost savings from the cloud deployment will become more significant when: ■

No deduplication is used for the on-premises deployment. This is often the case for branchoffice primary storage deployments.

■

The ratio of the on-site cached data in the cloud gateway is raised relative to the data stored in the cloud. It is usually not necessary to keep all data available in the cloud within the cache of the appliance. Often a 10:1 ratio will suffice for frequently used data. For this use case, the cloud storage gateway is presumed to fully mirror the entire cloud storage effective capacity.

■

The production environment is larger. As the total capacity grows, due to the on-premises utilization rates, the unused capacity will constitute a larger proportional increase in onpremises costs.

Additional research contribution and review: Valdis Filks

Gartner Recommended Reading Some documents may not be available as part of your current Gartner subscription. "Hybrid Cloud Storage Can Be an Antidote to Rapid Data Growth" "Critical Capabilities for Public Cloud Storage Services" "Cloud Storage Gateways With Public Storage Services Support 'Outside the Data Center Box' Thinking" "How to Balance the Benefits and Risks of Cloud Storage Against Operational Needs" "IT Key Metrics Data 2013: Key Infrastructure Measures: Storage Analysis: Multiyear" "Beware of TCO Storage Tools Bearing Gifts" Evidence This research note is based on hundreds of Gartner client inquiries handled on this topic by the authors. In addition, the authors leveraged the efforts of Gartner Community Vision, which is a collaborative research effort that taps the collective insight of Gartner's community of analysts on issues of midterm and long-term impact, offering forward-looking insights into trends, themes and industry developments.

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