Cloud Computing: Is it a Cost Saver?

Thesis for Managing Information Organization – GCIS 546

Master of Science in Computer and Information Science
Gannon University, Erie, PA

Batul Poonawala
Email: poonawal001@gannon.edu
December 11, 2009

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Thesis Statement..................................................................................................................3
Abstract................................................................................................................................3
Introduction..........................................................................................................................3
Definition.............................................................................................................................4
Cost Analysis ......................................................................................................................5
Cloud Computing for startup companies.........................................................................6
Cloud Computing for scientific applications (Montage).................................................6
Cloud Computing for Decentralized Online Social Networks (OSN).............................7
Cloud computing for a lab environment..........................................................................8
Cloud Computing for Enterprise....................................................................................10
Key Issues of Cloud Computing........................................................................................11
Data Governance............................................................................................................11
Manageability................................................................................................................11
Monitoring.....................................................................................................................11
Reliability and Availability............................................................................................12
Conclusion.........................................................................................................................12
References..........................................................................................................................13

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Thesis Statement
My opinion is that cloud computing is no cost saver and it will ultimately lock users
into expensive systems that compromise security.

Abstract
On demand provisioning of scalable and reliable computing services which charges
users based on the actual usage of services has been an objective of distributed
computing since a long time. Cloud computing is an emerging technology which
assures to fulfill this objective: provide on-demand computing services for
applications and data, and a structure where consumers access these services on a pay-
per-use basis. However, adoption of cloud computing in the enterprise world requires
proving the business value of cloud computing to organizations. Since companies are
in general always finding ways to gain competitive advantage and lower operational
cost, the financial advantage of any computing services plays a major role in
promoting the usage of the service. The main purpose of this paper is to explain the
concept of cloud computing and compare the cost and benefits of this new paradigm
with the conventional IT solutions and existing computing technologies.

Introduction
As society advances, some services become basic necessities so that consumers need
to have access to it whenever needed. In today’s day to day life, services such as gas,
water, electricity are a necessity. These services are provided by certain service
providers and consumers pay service providers based on the usage of these services.
The 21st century vision of computing is to provide a computing service, like the
present day utilities, which is readily available on demand (Buyya, 2009). These
computing services need to be highly reliable, scalable, and self-sufficient. With
technological advances in multi-core processors and networking, a large set of
computing services have been proposed. These new paradigms include Cluster
computing, Grid computing, P2P computing, Volunteer computing and most recently,
Cloud computing (Buyya, 2009). Cloud computing assures a robust infrastructure and

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 reliable services through next-generation data centers built on compute and storage
virtualization technologies. Consumers can access data from the “Cloud” anywhere in
the world, at any time.

Definition
In a CTO roundtable discussion at ACM, a panel of experts including CTO and CIO
of various organizations were asked the very basic question about the new paradigm of
cloud computing: “What is Cloud Computing?”. Each of their descriptions revealed a
new realm of dimensions for cloud computing (Mell, 2009).
Werner Vogels, CTO of Amazon.com – “It’s not just data. I also believe that clouds
are a platform for general computation and/or services.”
LEW TUCKER, CTO of cloud computing at Sun Microsystems – “Cloud computing
is not so much a definition of a single term as a trend in service delivery taking place
today. It’s the movement of application services onto the Internet and the increased
use of the Internet to access a wide variety of services traditionally originating from
within a company’s data center.”
GREG BADROS, Senior engineering director at Google – “There are two parts to it.
The first is about just getting the computation cycles outside of your walled garden
and being able to avoid building data centers on your premises. But there’s a second
aspect that is equally important. It is about the data being in the cloud and about the
people living their lives up there in a way that facilitates both easy information
exchange and easy data analysis.”

Apart from business executives, many computing researchers and practitioners have
attempted to define cloud in various ways. Computer scientists at National Institute of
Standards and Technology (NIST) have developed a draft definition of Cloud
computing in collaboration with industry and government. The definition states:
“Cloud computing is a model for enabling convenient, on-demand network access to a
shared pool of configurable computing resources (e.g., networks, servers, storage,

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 applications, and services) that can be rapidly provisioned and released with minimal
management effort or service provider interaction (Creeger, 2009)”.

Cloud computing ensures to offer an on-demand computing service where consumers

can rent infrastructure to deploy applications, store data and access the applications
and data on a pay-per-use basis [2]. Cloud operators such as Amazon, Google and
Microsoft, to name a few, offer such resources to users as they need them, when they
need them and for as long as they need them. Amazon Web Services (AWS) offers
computational and storage resources, which expand and contract in accordance with
the needs. Google presents the App Engine, which provides a server for hosting web
applications in the cloud. IBM too has declared plans for its cloud infrastructure,
called “Blue Cloud (Hayes, 2008)”.

Cost Analysis
Getting a complete inventory of costs of operational IT is very difficult as costs are
hidden almost everywhere. Furthermore, IT is often responsible for mission-critical
tasks that have nothing to do with using clouds as opposed to traditional IT service
offerings. The paper evaluates cloud computing costs for various business and
research scenarios by comparing the cost of computing on the cloud versus traditional
IT computing infrastructures.

In this paper we shall consider the cost structure for Amazon Web Service. For our
purposes we shall consider only 2 services provided by Amazon, namely, Amazon
Elastic Cloud Compute (EC2) and Simple Storage Service (S3). EC2 provides a
virtual computing environment where users can run their Linux-based applications.
Consumers are charged for the time every instance of application is run in the virtual
environment. S3 offers a data center where users are charged for each data transfer.

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Cloud Computing for startup companies
Cloud computing services can be employed by startup companies as a cost effective,
scalable infrastructure. The primary business objective of startup companies is cost
efficiency with the crucial problem of highly unexpected demands. The major costs
for a start-up company are buying new servers, several overhead costs like shared
utilities, security, backup power, etc. It is difficult to anticipate hardware demand and
unanticipated hardware failures have a terrible impact on productivity. Furthermore,
getting involved into server installation and other tasks is a big distraction in the plans
for company growth. New companies thus require a greatly flexible development and
deployment environment with high availability and scalability. One such case study is
of Zoopla, a real estate / property website (Zoopla Case Study: Amazon Web
Services). In building Zoopla, the team used Amazon EC2 and found a huge upside in
responsiveness and flexibility by having the option of renting infrastructure which
scales as per their needs.

Cloud Computing for scientific applications (Montage)

Cloud based outsourcing may be useful for scientific applications, as it saves the cost
of buying and maintaining costly computing infrastructure for short testing periods.
Deelman, with a few others have studied the cost of running a real-life astronomy
application, called “Montage” on Amazon cloud (Deelman, 2008). Montage provides
science-grade mosaics of the sky to astronomers for study. The input to the application
is an area of the sky whose mosaics are desired. A set of computations are performed
on this image, and after a few intermediate images, the final output mosaic is obtained.
Montage is a data-intensive application and the mosaics are of significant size
requiring large storage capacity. However, computational tasks have a short runtime.
For the cloud implementation of Montage, primarily all images from an input archive
are stored on the cloud (Amazon S3). When a user requests for a mosaic through the
Montage portal, the application generates a workflow to be executed either on local or
on cloud resources. Computing resources are acquired on the cloud and the workflow
is executed. At the end, the final output is transferred from the cloud to the portal.

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 Simulations were used to find the cost of using cloud for Montage. One of the
questions addressed by the research was to calculate the cost of running sporadic
computations on the cloud. It was found that as the number of processors is increased,
the storage cost decreases but the computational cost increases, which in turn
augments the total cost. Additionally, although Montage is data intensive, the storage
costs were found to be negligible compared to the cost of transferring data. Thus, it
appears that it may be beneficial to pre-store data in the cloud to reduce data transfer
costs. However, storing large amount of Montage data on the cloud turns out to be
around $1,800 per month with an additional cost of $1,200 for initial uploading of data
on the cloud. It can turn out to be cost effective, if there are approximately 18,000
mosaic requests per month, which is a remote possibility. Thus, the research shows
that the cloud is very effective in handling erratic overloads of mosaic requests and
providing resources for all its computational requirements. Thus, in order to store data
on the cloud, a proper calculation has to be done to see if it is better to store data on
the cloud, or is it economical to only use the computational resources of the cloud. If
data is stored for a long time with very less access to that data, then it may turn out to
be more expensive.

Cloud Computing for Decentralized Online Social Networks (OSN)

OSNs like Facebook have gained enormous popularity and thus have large amount of
personal user data. Due to privacy concerns, recent work has proposed the idea of
decentralized OSNs. Researchers have explored cloud computing as one of the
architectural alternatives for decentralized OSNs (Shakimov, 2009). This approach to
cloud-based decentralization is termed as Vis-à-vis. In Vis-à-vis each user’s data is
stored in a personal virtual machine instance called a Virtual Individual Server (VIS).
Each VIS is structured into overlay networks and just like a person can belong to
various groups, one VIS can belong to multiple overlay networks. VISs are run in a
cloud like Amazon EC2 (Amazon Elastic Compute Cloud). Experimental results show
that Vis-à-vis is a viable alternative for OSN. However, the latency of common OSN
operations grows slowly with the size of the OSN group. Also, the memory required
by each VIS grows with the size and number of OSN groups to which the VIS user

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 belongs. The main drawback of Vis-à-Vis is its cost. At the moment, Amazon EC2
charges ten cents per hour for a default virtual machine with 1.7 GB of memory, 1
virtual core, and 160 GB of persistent storage. Data-transfer fees vary depending on
the location of the machines with which the virtual machine is communicating. Even
without network-usage fees, running a virtual machine for one month costs close to
US$75 per month. Cloud computing thus provides high availability at the cost of
additional expenditure.

Cloud computing for a lab environment

A blog (Cost of cloud computing, expensive, 2009) on the internet was focused on
determining the cost of moving a lab environment to a cloud environment to find it’s
cost effectiveness. The author demonstrated the cost of hosting the lab environment in
Amazon’s EC2 and S3 (Amazon Simple Storage Service) and comparing it with the
cost of having it in house.
Amazon EC2 Costs for 300 lab instances are as shown below. There are 744 hours in a
typical month (24*31).
Cost/Instance
Instance Type Num Compute Cost/Month
Hour
Windows 100 $0.125 $9,300
Windows + SQL Server 50 $1.100 $40,920
Linux 150 $0.100 $11,160
Windows (SQL/xlarge) 2 $2.400 $3,571.20
Total Cost Per
$64,951.20
Month
Storage Storage Cost/Month
5.6T (usable) $0.10 Gb/month $573.44
$0.10 per 1MM
I/O 30B $300.00
I/Os
Network Network Cost/Month
I/O 20 Gb $0.10 Gb/month $2.00
Total EC2
$64,826.64
Cost/Month
Total EC2 $789,919.68

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 Cost/Year

On the other hand the actual lab costs were:

Gear Number Cost Per Month

Dell 1950 28
Dell 2950 2
HP DL585 2
10TB iSCSI 1 $10,000
Dell/HP/Equallogic
$300
Support
HVAC/Power $1,000
Floor Space 500 sq/ft $24 sq/ft/year $1,000
VMware ESX 9 $1,250
Annual Support
$1,250
(VMware)
Internet $1,200
Network
$556
Infrastructure
Total
Infrastructure $16,556
Cost/Month
Software Cost
SQL Server 2008 $2,083
Oracle 10g/11g $2,083
Labor Cost/Month $4,166
Total In-House
$24,888.89
Cost/Month
Total In-House
$298,666.67
Annual Cost

The author further states that even by summing the head count for network and
compute infrastructure, the difference between in house and EC2 is ($789,919.68 –
$298,666.67) = $491,253.01. This is a reasonable difference for a system that is
always on.

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Cloud Computing for Enterprise
For a service to be accepted by the enterprise, it must move from early adopter phase
to early majority. The proof that a technology has reached this stage comes from a big
number of enterprises using the service for business-critical purposes. Forrester and
his research team could not find enough enterprises using Cloud Computing to prove
that it has matured to the point of IT consideration and crossed from early adopter to
early majority yet (Staten, 2008). Of most companies deploying cloud computing, the
enterprises are using Cloud computing only for research and experimentation. This
shows that although enterprise is trying to dip their toes into the cloud, they have not
been completely satisfied of its capabilities and hence not ready to move critical
applications to the cloud.
Since not many enterprises have tried cloud computing as of now, it is difficult to
prove cost effectiveness of cloud computing due to unavailability of enterprise
statistics. By the research carried out in this paper, and the cost calculations of various
organizations listed above, I believe that cloud computing might not be cost effective
for large organizations. To support my belief, I use the Montage example and the fact
that Amazon S3 charges users for every GB of data stored in their storage, and upload
and download of data each time. Since organizations have huge quantities of data,
cloud computing will turn out to be costlier if this data is not accessed frequently.
Additionally, enterprises have well managed data centers, which are operating at good
economic scales. Thus, enterprises do not have significant cost advantages related to
initial capital investments. Another issue is the software complexity and cost to
migrate data from an enterprise application to the cloud. While migration is a one-time
task, it requires significant effort and needs to be considered as an important factor in
deciding to move to the cloud.
McKinsey and Company carried out a research of replacing a large enterprise
computing operation with rented space on an external cloud. His analysis shows that
cloud computing would be more expensive than the in-house datacenters.

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Key Issues of Cloud Computing
Apart from cost, there are many factors that need to be considered while adopting
cloud computing at the enterprise level. At a workshop held at the Center for
Information Technology Policy at Princeton University, a major subject of discussion
was the questions about cloud computing privacy, security, and reliability (Zoopla
Case Study: Amazon Web Services).
Data Governance
Enterprises have tons of sensitive data which needs access for monitoring and
protection. As stated in an article (Zhen, 2008) “Data is the life blood of many
enterprises, the loss of control will not be acceptable.” In addition to privacy,
enterprises have to meet certain compatibility issues when dealing with important
data. By moving data to the cloud, enterprises will lose the ability to govern their own
data. Handing over sensitive information to third-party services, raises questions about
access and ownership like: What would happen to your data if you fail to pay the bill?
If you decide to move to another cloud provider, can you take your data with you?
Does the service provider have the right to access any part of your data? (Hayes,
2008).

Manageability
As discussed earlier in the paper, cloud computing is still in it’s infancy stages. Just
like any other technology, cloud currently provides just raw infrastructure and
platform. It still has to mature to provide additional manageability capabilities. As an
example, when Amazon EC2 claims that it is scalable, it merely means that it has the
potential to be scalable. It does not automatically scale applications when load on the
servers increases. It is the responsibility of the developers to handle this scalability.

Monitoring
CPU and memory usage are not the only contributors to monitoring of a service. The
real measurement is the amount of time taken for a transaction to complete (latency).
As stated in High Availability’s article on latency:

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 “Amazon found every 100ms of latency cost them 1% in sales. Google found an
extra .5 seconds in search page generation time dropped traffic by 20%. A broker
could lose $4 million in revenues per millisecond if their electronic trading platform is
5 milliseconds behind the competition.”

Reliability and Availability

JohnsonDiversey, maker of commercial cleaning products adopted Google Apps
Engine for an e-mail upgrade. The CIO of the company mentioned that 99.9% uptime
guarantee of Google results in 43 minutes down-time a month (Weier, 2009).
Although it was acceptable to JohnsonDiversey, it cannot be tolerable for crucial
business services.
Furthermore, there are almost no Service Level Agreements (SLAs) provided by the
cloud providers today (Zhen, 2008). Even Jeff Barr from Amazon said that SLAs are
provided only for their S3 service. For any enterprise to have faith in a new service,
contracts need to clearly define SLAs.

Conclusion
Cloud Computing definitely offers a new business model for computing and storage.
The long dreamed vision of computing as a utility is finally emerging. The main users
of cloud computing today are small companies and startups which do not have legacy
management issues. The elasticity of the cloud matches the need of small businesses
to expand at a much faster rate. The process of growing which took years earlier, can
now be done within months.
As appealing as the concept of cloud computing sounds, it is still very new and hard
for traditional IT to trust. Majority of enterprises use cloud today for innovation and
experimentation. Some efforts of deploying web-based collaboration services and low
priority business applications on the cloud have been identified. However, enterprises
already have economic data centers running at scale, and transitioning all data to the
cloud may prove to be more expensive than traditional IT infrastructure. Additionally,
cloud computing needs to solve questions regarding privacy, security, reliability and

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 availability to be largely accepted by enterprises. Cloud computing must meet
enterprise standards and provide the capability to be monitored and controlled by IT.

References
1. P Mell, T Grance. (2009). The NIST Definition of Cloud Computing. Retrieved
Oct 27, 2009, from NIST: http://csrc.nist.gov/groups/SNS/cloud-
computing/cloud-def-v15.doc
2. M Creeger. (June 2009). CTO Roundtable: Cloud Computing. ACM, New York,
NY, USA. http://delivery.acm.org/10.1145/1560000/1551646/p1-
ctoroundtable.pdf?
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FTOKEN=30390835
3. R Buyya, CS Yeo, and S Venugopal. (2009). Market-Oriented Cloud Computing:
Vision, Hype, and Reality for Delivering IT Services as Computing Utilities.
Future Generation Computer Systems
4. B Hayes. (2008). Cloud Computing. Communications of the ACM

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5. Retrieved from Amazon Elastic Compute Cloud (EC2):
http://aws.amazon.com/ec2/
6. Retrieved from Amazon Simple Storage Service (S3): http://aws.amazon.com/s3/
7. E Deelman, G Singh, M Livny, B Berriman, and J Good. (2008). The Cost of
Doing Science on the Cloud: The Montage Example. IEEE Press, Piscataway, NJ,
USA http://delivery.acm.org/10.1145/1420000/1413421/a50-deelman.pdf?
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5&CFTOKEN=36754616
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Availability Tradeoffs in Decentralized OSNs. ACM, New York, NY, USA.
http://delivery.acm.org/10.1145/1600000/1592669/p13-shakimov.pdf?
key1=1592669&key2=6244159521&coll=GUIDE&dl=GUIDE&CFID=6557670
1&CFTOKEN=90216934
9. Retrieved Nov 29, 2009, from Zoopla Case Study: Amazon Web Services:
http://aws.amazon.com/solutions/case-studies/zoopla/
10. Retrieved Jan 2009 from Cost of cloud computing, expensive!:
http://www.uptimesoftware.com/uptimeblog/cloud-virtualization/cost-of-cloud-
computing-expensive/
11. MH Weier, JN Hoover (2009). Alternative IT. Information Week, ABI/INFORM
Global
12. J Staten (2008). Is Cloud Computing Ready for the Enterprise?, Infrastructure and
Operations Professionals, Forrester.
13. J Zhen (2008). Five Key Challenges of Enterprise Cloud Computing. Cloud
Computing Journal. Retrieved Dec 11, 2009 from, http://cloudcomputing.sys-
con.com/node/659288

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