What are the Real Total Cost of Ownership of Private Cloud
Jan 20
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There are many reasons why an organization would want to build their private cloud. It could be that they decided to repatriate their workload on-premise, an enterprise is undergoing a tech-refresh, others would like to change their existing technology, or they are undergoing a transformation to implement a hybrid cloud strategy. Lastly, it could be simply moving from bare metal to virtualization. Either way, all of these involve cost. In this article, I am going to discuss What are the Real Total Cost of Ownership of Private Cloud.
Software Licensing Cost
This is an obvious cost. Licensing cost is defined as the annual recurring fee for the use of the virtualization software you are to use.There 3 typical model for licensing cost:
CPU CORE - The expense is determined by the count of physical CPU cores in the cluster. For instance, if your cluster consists of 10 CPUs, each with 32 cores, you will need to purchase 320 licenses.
Socket - This refers to the count of physical CPUs in the cluster. Typically, a single node contains 2 CPU sockets. Therefore, if your cluster consists of 10 nodes, you will need to purchase 20 licenses.
Node - The count of physical servers in your virtualization cluster. Therefore, a virtualization cluster with 24 nodes implies you will need to purchase 24 licenses.
Watch Out:
When asking for licensing cost ask for 3 and 5 years TCO.
When asking for licensing cost, check and ask for the historical price increase
Make sure you got to lock the licensing price in your commercial
Have an exit clause
Perpetual Cost
This is tricky. Before I discuss why it is tricky let me explain first the basic idea of perpetual licensing. This simply means a one time licensing cost at its simplest. So if you are to build a virtual private cloud, a vendor may charge a one time licensing cost rather than annual recurring per CPU.
Why is it tricky?
There are companies who will charge one time perpetual cost + annual licensing cost then after causing TCO to become even more expensive.
There are companies that perpetual cost is even more expensive than annual licensing cost.
Perpetual cost can become sunk cost if it is purchase in a bulked commitment for 3 or 5 years. This means you are locked to the technology rather than pay as you go annually.
Sometimes; perpetual cost simply is a semantic used by seller but if you are to understand, it is same as licensing cost with only different language used for marketing purposes.
Things to Consider:
Be mindful when the cost in the commercial entails a one time perpetual cost + licensing cost. It may end up even more expensive in the TCO.
Services Cost
When building a private cloud, enterprise should explicitly ask wether services cost is already included in the current cost provided by the vendor. Service cost is the cost of work building the infrastructure and other project related activities to build the private cloud.
Things to Consider:
Explicitly ask the inclusion of service cost. Such as project management, engineering, consulting, actual work, and more.
Explicitly clarify what are the exclusions of services.
Ask for the RACI matrix of the activities to ensure you got everything covered and no work is left un assigned between the vendor and your enterprise.
Migration / Professional Service Cost
This is the cost of moving workload to the newly built virtualization cluster. After building private cloud. The priority of enterprise is to move workload to that newly built private cloud. Otherwise the private cloud will be running with an empty workload. Clearly ask the vendor if the commercial includes the migration services of moving workload.
Things to Consider:
If migration is not inclusive, how do you know the new private cloud will be able to host your workload correctly? Thus explicitly ask for the migration cost.
If vendor can not provide migration service, this is something that is bothersome. You need to make sure vendor can help you onboard workload.
Ask for the private cloud adoption journey of the vendor. By minimum they should cover the following: Discovery, Planning, Build, Migration of Workload, Stabilization, Handover, and Training.
Maintenance Cost
This cost component is another tricky. Enterprise must ensure the definition of maintenance cost and the coverage. Is it both hardware and software, is it managed service? There is a risk that managed service is hidden as part of maintenance cost which will potentially increases the total cost of ownership. Managed service inserted or hidden as maintenance cost without the enterprise knowledge could cost vendor lock-in.
Two types of Maintenance Cost
Software Maintenance - these are the patch, updates, and upgrades component of the software.
Hardware Maintenance Cost - these are the warranty of the hardware, services to replace damage hardware, and replacement to hardware failure. Others also includes firmware upgrade, and compatibility testing of hardware.
Things to Consider:
Be clear wether managed service is inclusive of the maintenance cost. I do not recommend putting managed service as part of maintenance cost because managed service are longterm decision.
Managed Service Cost
I generally advise against opting for managed services unless it aligns with your strategy. Be cautious, as these services are often hidden within maintenance costs. At the beginning, explicitly inquire whether their proposal includes managed services. If it does, I suggest that an enterprise request the vendor to list this as a separate standalone item in both the cost and the commercial proposal. The goal of an enterprise is to build competency in the private cloud so that they can do transformation. Managed service are often remove the organisation from control of their cloud thus slowing the agility of the transformation.
Things to Consider:
Should you decide to include managed service, ensure exit clause.
Should you decide to include managed service, ensure handover clause.
Should you decide to include managed service, ensure to have it renewed annually.
Hardware Cost
It is impossible to create a private cloud without hardware. The essential hardware components needed to establish a three-tier private cloud include compute, storage, and network resources. If you plan to reuse your existing hardware and the virtualization software you intend to use is compatible, purchasing new hardware is unnecessary. However, if you lack existing hardware, ensure that the vendor includes hardware costs in the pricing. There are three fundamental methods to model hardware costs:
CAPEX Model - you purchase a hardware. Declare it as CAPEX. Then depreciate the expense.
OPEX Model - you may choose to rent Hardware from the vendor. The advantage of this is that each time there is a require to replace the HW and upgrade it. It is part of your OPEX agreement most of the time. Check with your vendor. Do note that computing the TCO of OPEX model is understandably more expensive. An example of OPEX model hardware is HP Green Lake.
Buy Back Model - Vendor may opt to purchase your existing hardware in case you are short of fund and replace it with new one. This often happen when you require newer model or in case there is hardware limitation of your existing.
Things to Consider:
Avoid duplicate hardware cost
Make sure your old hardware can be repurposed
Avoid over sizing of hardware
Ensure hardware compatibility of both the existing and upcomming
Check for the software compatibility of the virtualization
Parts repalcement and availability
Review the coverage of your hardware support
Sunk / Duplicate Cost
This occurs when an organization attempts to substitute its private cloud with a new solution or when they aim to bring their public cloud back on-premises. The duplicate costs arise because, at some stage, both solutions will operate simultaneously. Consequently, the existing solution becomes a sunk cost.
Things to Consider:
Budget for the sunk cost and the upcoming
Ensure to reduce the overlap of the two
Negotiate with vendor not to charge you for a certain period of time to compensate the parallel cost or untill such time workloads are migrated.
Conclusion
The expense of constructing a private cloud can be complex. Ensure you thoroughly examine the pricing provided by your vendor. Request a comprehensive breakdown of expenses, and have them detail the cost components for each item in the BOM. Inquire about the total cost of ownership over 3 to 5 years, and conduct a cost sensitivity analysis with your current solution to assess whether the change or purchase is justified.