Cloud Economics

Cloud Economics: How to determine your TRUE Cloud TCO- Part 2

In the first part, we discussed the basics for  determining the compute, storage and networking costs for your public cloud. However, many organizations typically require cloud services beyond basic compute, storage and networking and it is essential to account for the costs associated with these additional services as well.

In this post, we will discuss how to budget costs for add-on (e.g. Backups/Snapshots, Direct connect, Security) cloud services and platform-as-as-service (e.g. AWS DynamoDB) solutions.


Typically, any running compute instance that’s attached to a block storage such as Amazon Elastic Block Storage (EBS) should have a back up to avoid data loss in the event of issues such as data corruption or accidental delete etc. A daily snapshot is typical for most server instances and a backup usually starts with a full snapshot followed by backups of the incremental daily difference. For a 100 GB EBS volume, let’s assume that there is a  1 % difference each day. For a month, that amounts to an initial snapshot of 100GB and each daily snapshot would amount to 1 GB resulting in a total monthly snapshot volume of  ~130GB.  AWS EBS stores its snapshots on Amazon S3, and AWS currently charges $0.05 /gb. For the above example, an additional $6.5 /month per server instance must be budgeted (assuming same region backup).

For production workloads, it is recommended that a snapshot copy should be stored in an additional region. In this case, AWS charges a data transfer charge $0.020 /GB. For the above example, a 130GB data transfer, would cost an additional: $2.6 /month for each server instance that needs a snapshot.

Direct Connect and VPN Connectivity: 

Many organizations choose to establish direct connectivity to a public cloud provider such as AWS from their on-premise data center. This is particularly useful for latency intolerant production workloads such as E-Commerce sites or for high bandwidth applications. If you choose to leverage a service such as Amazon Web Services (AWS) Direct Connect, you will be billed for “Port-Hours” and data transfer charges. Port hours are essentially the time in hours your data center router is connected to the AWS router.   The pricing varies based on the “Speed” required. As an example, a port speed of 1GB will be billed at $0.30/hour or $219/month. Data transfer costs varies based on the location of the direct connect connectivity point and AWS region. For an Equinix direct connect location in Atlanta, GA that involves a 1000GB data transfer per month from a US-East Virginia region, will incur a cost of $ 0.02 /Gb of data transfer out from the AWS region or a total of $20/month. Data transfer into AWS is free of cost.


Cloud security is one of the most critical dimensions that organizations should pay attention to. Cloud providers have come a long way in terms of providing the robust features that large enterprises expect. Amazon Web Services (AWS) has in the recent past, introduced services such as “Web Application Firewalls (WAF)”, that helps protect web applications from attacks such as cross-site scripting or SQL injection attacks. AWS WAF pricing is a factor of the number of access control lists (ACLs) and the number of rules that are required by your application. For e.g. a typical web application may have around 10 ACLs and 10 rules. The charges would be as follows: $5/ACL *10= $50 + $1*10=$10 = $60/month. If your web application serves around 10 million requests/month, you will also incur charges @ $0.6 /million web requests or a total of $6/month.

In addition, AWS provides a comprehensive Distributed Denial of Service (DDoS) service called AWS Shield that enables always on-detection and in-line mitigation against large scale attacks on your application. AWS Shield Standard is enabled by default for all your applications. However, if you run a large revenue generating or customer facing application you should consider AWS Shield Advanced which requires an annual subscription of $3000/month.

Platform-As-A-Service (PAAS):  Many organizations are moving to Platform-as-a-Service (PAAS) because of the innovative features being offered as well as the reduced burden of managing the cloud infrastructure. When comparing cost of PAAS to On-Premise TCO, a reduction in labor costs resulting from the efficiencies gained from PAAS should be included. The actual cost of platform-as-a-service (PAAS) will vary greatly based on the actual service. Cloud providers such as Amazon Web Services (AWS) include a plethora of PAAS service offerings such as Amazon Dynamo DB,  Amazon Simple Queue Service (SQS) etc. Any organization that’s looking to leverage Platform-As-A-Service (PAAS) solutions must compile a list of all the PAAS services that the application will likely benefit from and determine key parameters that influence pricing.

For e.g for Dynamo DB, the number of reads/writes per second and data storage determine the actual cost of using Dynamo DB. For SQS, the number of message requests, payload size and content of requests comprises the cost of the service.

Click HERE For Part 1, determining your compute, storage and networking costs.

In part 3, we will look into discounting techniques and how to lower your cloud-costs through use of pre-purchased cloud instances.

In part 4, we will account for additional costs such as software licensing, cloud management and software licensing costs that must be accounted for.

In part 5, we will discuss determining cloud-costs in a multi-cloud environment.

(Note: All pricing examples are based on Amazon Web Services (AWS) pricing as of the date of publishing this post and are based on the US-East-Northern Virginia region)

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