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The Economics and TCO of Migrating to AWS

Strategies to Quantify TCO and Optimize Costs

James Macedonio

August 23rd, 2016

What to expect…

We will introduce our approach for building a business case for moving to the cloud and share tips on how to successfully architect for cost optimization in order to realize the best economic benefit of the AWS Cloud

2/3Roughly two-thirds of

IT budgets go toward

keeping the lights on

66%of CEOs believe security

risk has increased in the

last 6 months and 66%

believe their risk management

capability is falling behind

15 yearsThe average lifespan

of an S&P company―—

dropped from 67 years in

the 1920s to 15 years today

How this affects you

You’re left without

the necessary resources

to pursue critical business

initiatives required to maintain

a competitive advantageYour traditional IT model

lacks the agility you

need to keep pace with

innovative startups

Insufficient security,

compliance and availability

can hamper your ability to

compete and open the door

to events that can cripple

your enterprise

Hotels Storage Insurance Grocery delivery

This is something “born in the cloud”

companies have already discovered

Devices

Disruption is much easier today

Responding requires a new model

Focus on differentiating your company

Innovate at start-up like speed

Reduce risk

What sets AWS apart?

Building and managing in the cloud since 2006

50+ services to support any cloud workload

History of rapid, customer-driven releases

13 regions, 35 Availability Zones, 56 edge locations

Over 50 proactive price reductions to date

Thousands of partners; 2,300+ Marketplace products

Experience

Service breadth and depth

Pace of innovation

Global footprint

Pricing philosophy

Ecosystem

Let’s dive deep on costs

Benefits of elastic and pay-per-use infrastructure

Unable to

Serve

Customers

Infrastructure

Cost $

Time

Large

Capital

Expenditure

Opportunity

Cost

Predicted

Demand

Traditional

Hardware

Actual

Demand

Automated

Virtualization

A couple of examples

Upgrades are your responsibility Upgrades happen automatically

On-premises infrastructure

VPC support

With AWS, service upgrades occur automatically

AWS

Managed services eliminate many operational tasks

Do-it-yourself MySQL replication

Potentially ~100+ manual steps

Set up primary and standby instances

Set up identical volumes

Create synchronous replication

Create and manage DNS entries

Detect instance failure conditions

Detect network failure conditions

Detect storage failure conditions

Decide when to fail over….

Re-establish primary secondary connections

Amazon RDS Multi-AZ

High availability

with a mouse click

Analysts have shown AWS reduces costs over long term

Source: IDC, Quantifying the Business Value of Amazon Web Services (May, 2015)

https://aws.amazon.com/resources/analyst-reports/IDC-business-value-aws/

The value of using AWS accelerates over time

Source: IDC Business Value of AWS Accelerates over time

According to IDC, this relationship between length of time using AWS and return is due to customers

leveraging the more optimized environment to generate more applications along a learning curve

$1 investment in AWS

$8.40 in benefits

At 60 months of using AWS

~8x$3.50 in benefits

$1 investment in AWS

At 36 months of using AWS

~3x

In the beginning . . .

…there was TCO

What is TCO?

Definition: Comparative total cost of ownership analysis (acquisition

and operating costs) for running an infrastructure environment end-to-end

on-premises vs. on AWS.

Used for:

1) Comparing the costs of running an entire infrastructure environment or

specific workload on-premises or in a co-location facility vs. on AWS

2) Budgeting and building the business case for moving to AWS

Comparing TCO is not easy

≠

TCO the way clients typically see it

Diagram doesn’t include every cost item. For example, software costs can include database, management, middle-tier software costs.

Facilities cost can include costs associated with upgrades, maintenance, building security, taxes, and so on. IT labor costs can

include security admin and application admin costs.

Hardware—Server, (+Maintenance)Software—OS, Virtualization Licenses

(+Maintenance)

Hardware—Storage Disks

Network Hardware—LAN Switches, Load Balancer

Bandwidth Costs

Server Admin Virtualization Admin

1

2

3

4

Server

Costs

Storage

Costs

Network

Costs

IT Labor

Costs

TCO the way it is = acquisition + operational costs

Diagram doesn’t include every cost item. For example, software costs can include database, management, middle-tier software costs.

Facilities cost can include costs associated with upgrades, maintenance, building security, taxes, and so on. IT labor costs can include

security admin and application admin costs.

Hardware—Server, Rack

Chassis PDUs, ToR

Switches (+Maintenance)

Hardware—Storage Disks,

SAN/FC Switches

Network Hardware—LAN

Switches, Load Balancer

Bandwidth Costs

Server Admin Virtualization Admin

1

2

3

4

Server

Costs

Storage

Costs

Network

Costs

IT Labor

Costs

Software—OS, Virtualization

Licenses

(+Maintenance)

Storage Admin Costs

Network Admin Costs

Facilities Cost

Space Power Cooling

Facilities Cost

Space Power Cooling

Facilities Cost

Space Power Cooling

When Performing a TCO analysis

• Build the TCO comparison collaboratively with the customer in multiple iterations, take the “No surprises” approach

• Make sure you have the right stakeholders in the room to discuss TCO (Finance, Procurement, IT support, Engineering)

• Avoid Comparing a duplicate of customer’s on-premise environment – problematic apples-to-apples comparisons of machines

• Assign cost/value to non-tangibles such as agility, opportunity costs

So you’re feeling pretty good.

Until your CFO shows up with the bill.

Cost optimization is…

going from…

to…

pay for what you use

pay for what you need

The four pillars of cost optimization

Right sizing Reserved

Instances

Increase

elasticity

Measure,

monitor, and

improve

Right sizing

Right sizing

• Selecting the cheapest instance

available while meeting performance

requirements

• Looks at CPU, RAM, storage, and

network utilization to identify potential

instances that can be downsized

• Leverage Amazon CloudWatch

metrics; set up custom RAM metric

Rule of thumb: Right size, then reserve.(But if you’re in a pinch, reserve first).

Reserved Instances

Commitment level1 Year

3 Year

AWS services offering RIsAmazon EC2

Amazon RDS

Amazon DynamoDB

Amazon Redshift

Amazon ElastiCache

* Dependent on specific AWS service, size/type, and AWS Region

Reserved Instances

Step 1: RI coverage

• Cover always-on resources

Step 2: RI utilization

• Leverage RI flexibility to increase utilization

• Merge and split RIs as needed

Rule of thumb: Target 70–80% always-on

coverage and 95% RI utilization rate.

Increase elasticity

Turn off nonproduction instances

• Look for dev/test, nonproduction instances that

are running always-on and turn off

Autoscale production

• Use Auto Scaling to scale up and down based

on demand and usage (that is, spikes)

Rule of thumb: Shoot for 20–30% of EC2

instances running on demand to be able to

handle elasticity needs

29 m4.large @ $0.12 /hr

$2,505.60 / mo*

59 t2.medium @ $0.052/hr

$2,208.96 / mo*

*Assumes Linux instances in US-East at 720 hours per month

Using right sizing and elasticity to lower cost

More smaller instances vs. less larger instances

• Be Fault Tolerant

• Workloads should be Stateless

• Loosely Coupled workloads preferred

• If possible, deploy to Multiple AZs

• Instance Flexibility is king

• Take advantage of the 2 minutes warning

• There is always Spot capacity available

Use Spot to Increase Elasticity Savings

Save up to 90% compared to On-Demand

What could you do with a 10,000 core data center that

costs $100 per hour, with one click?

Novartis, Cycle Computing &

AWS Spot Instances

Goal: Screen 10 million compounds against a

common cancer target

Estimated on-prem costs: $40M

Estimated computational time: 39 Years

Solution: Use 10,600 AWS Spot Instances

Outcome: 3 promising compounds identified

Cost: $4,232

Time: 9 Hours

Novartis, Cycle Computing &

AWS Spot Instances

Cost optimization governance

(Remember the fourth pillar?)

Continuous

Measuring, monitoring, and improving

AWS options

Partner Ecosystem

What about the cost of migration?

The Migration Bubble – Components

Planning and

Assessment

Migration Tools Consulting Partners

Internal Training Duplicate

Environments

Lease Penalties

The Migration Bubble

AWS PS Application Migration Level of Effort

Very Low

Basic workload

Current/supported OS on AWS

Known / documented environment

No database

Projected to migrate with basic tools

Few dependencies

Scheduled outage is OK

Low

Basic workload

Partially documented components

No database

May require re-platforming (i.e. OS)

Scheduled outage is OK

Medium

Contains multiple components

Additional effort to document components

No database

May require re-platforming (i.e. OS change / upgrade)

Outage with advance planning

Business impact possible for production servers

High

Multiple components including database

System may include greater than five disks

Limited downtime permitted

Production servers likely to impact business if unavailable for an extended period of time

Very High

Multiple components including database

Complex system configuration (e.g. numerous disks)

Contains several dependencies

Limited to No acceptable downtime

Requires advanced detailed assessment and planning

High-touch migration

2 – 4 hours 4 – 6 hours 6 – 8 hours 10 – 14 hours 20 – 24 hours

VM Conversion

Host Cloning

VM Conversion

Host Cloning

Live Migration

App

Containerization

Live Migration

App

Containerization

Mig

rati

on

Me

tho

d

Live Migration

Host Cloning

Let’s do a sample Total Cost of

Migration (TCM) exercise…

Cost Model is based on a

Enterprise Migration of 469

workloads of varying complexities.

Mean Migration Effort Across

Hosts: 5.66 hours per host

Sample Migration Cost Model

Total Migration Effort Across 469 Hosts

88

205

55

109

120

50

100

150

200

250

Very Low Low Medium High Very High

2 4 6 10 20

Hours

$1202 per server (average)

$153

$849

$200

2656 hours @$150/hr Avg

250 hours @$287.50 Avg

Total Cost of Migration = $563,738

Average Cost To Migrate Each Server

Determining the Migration Bubble Payback Period

(i.e. Breakeven)

On Prem (3 yr) AWS (3 yr)

Compute $1,720,061 $698,858

Storage $774,800 $245,353

Network $367,659 $37,104

IT Labor $675,360 $550,240

AWS Support $0 $98,131

Total $3,537,880 $1,629,686

$636,064 Yearly Savings

One Time Migration Cost: $563,738 Breakeven: 10.6 Months

In summary:

With AWS, you can more easily...

Move quickly

Hit your deadlines

Have more time to focus on what

differentiates your business

and new innovative ideas

With AWS, you have fewer long

and large projects

Long and large projects

• More likely to exceed budget

• More likely to run late

• More likely to fail to deliver full value

Is there any truth behind this? Based on research from McKinsey Consulting – Projects over $15m

$66 billion in cost overruns in 5,400 IT projects

How much can your customer

save?

Reduce risks

45% of the project over $15m exceed

its budget

Reduce risks

7% over time and deliver half the

predicted

Reduce risks

Each additional year in a project boosts

the likelihood of missing targets by

15%

Reduce risks

Business Agility

The AWS Platform can act as a catalyst to transform

the business

Quality of Service

Cost

• Infrastructure

Savings

• Opportunity to re-

evaluate existing

outsourcing deals

• Significant Reduction

in Fixed IT Overhead

• Increased release

cycles

• Reduced outages

and service support

overhead

• Increased security

and resiliency

• Common global

platform

• Accurate

Application Portfolio

and Financial

management

• Architectural

framework for

Innovation

• Elimination of

legacy bottlenecks

• Reduce the cost of

failure and an

increase in the pace

of experimentation

Experiment and lower risks

Innovate by increasing the ability to “fail fast”

20 new projects

10

2

IT project funnel

Increase the number of new projects in the funnel

Increase the speed by which projects move through the funnel

Decrease the downside impacts of project “failures” (shut ’em down quick)

Keep costs low for the successes

Putting it all together

What to do next?

Cloud center of excellence

AWS’s 13 regions,

35 Availability Zones,

50+ services,

and hundreds of innovations

can help you.

Leverage AWS global footprint

So this will result in

Lower costs

Increased agility

The ability to scale based on market needs

The ability to innovate around your unique value

The ability to leverage what you already own

The AWS Partner Network (APN)

• The APN is the global partner

program for AWS focused on

helping members connect to

customers and build a successful

AWS-based business

• Thriving ecosystem comprised

of tens of thousands of Consulting

and Technology Partners around

the world

Why engage with an APN Partner?

Consulting Partners provide expertise to help you plan, migrate/build,

run, and optimize your workloads on AWS

Technology Partners offer solutions that provide additional value for

your firm on top of the AWS platform. Marketplace has over 2,300

software listings in over 30 categories

The goal of the APN: Set a high bar to help you find the right APN

Partner to address your business needs

2016 AWS Premier Consulting Partners

Advanced APN Technology Partners

…and more

Resources to get you started

AWS TCO Calculator

https://awstcocalculator.com

AWS Economics Center

http://aws.amazon.com/economics/

Case Studies and Research

http://aws.amazon.com/solutions/case-studies

Remember to complete

your evaluations!

Thank you!

jmacedon@amazon.com