Cloud ROI tips for finding the bottom line

While there is no simple equation that can accurately determine cloud ROI, following the right steps can get you started.

As most storage experts know, it can be tricky to accurately determine cloud ROI. With pay-as-you-grow formulas driving many cloud storage strategies, it can be a challenge to determine which metrics are most reliable when trying to determine the real cost – and cost-reduction value – of cloud strategies. While there is no simple formula for calculating a return on investment (ROI) a few months, or a few years down the road, there are a number of steps storage managers can follow to accurately calculate their ROI.

“There’s no magical answer where you put in the first two numbers and out comes a yes or no,” explained Arun Taneja, founder and consulting analyst with the Taneja Group. “I certainly don’t think it’s that elemental.”

Instead, Taneja suggests following a number of steps to help determine the proper ROI.

“Really look at the full infrastructure that you’re going to need to get this thing off and running,” he explains. Start by asking yourself a number of important questions.

  • Where are you storing the data today?
  • Is it a new project? What backup system do you need to contain the data?
  • What kind of storage do you need?
  • What type of deduplication do you need?

You’ll need to be able to break out capex and opex for in-house systems to be able to compare current expenses to cloud costs. “That’s the biggest difference between doing something in the cloud versus in a data center. In a cloud you only have opex, no capex. In the data center, you’re going to have both,” explained Taneja.

Assuming it is backup data that is being placed in the cloud, you have to look at a number of cost factors that relate to your current set up, including:

  • The total backup infrastructure
  • The eventual cost of a forklift upgrade and purchasing new equipment
  • Any future capex expenses, including extra costs during an upgrade
  • Any future opex expenses, including extra costs of migrating to a new system

These cost factors are no longer applicable when switching to the cloud, as major upgrades to new backup servers or disk systems will no longer be necessary.

“That’s your stake in the ground for going in yourself,” says Taneja. The next step is contacting cloud storage service providers to determine what the cost will be -- per gigabyte, per month --  for the amount of data you need to store. Taneja suggests comparing multiple services, a step which he refers to as “relatively easy” compared to calculating capex and opex.

Ted Ritter, principal research analyst with the Mokena, Ill.-based consulting firm Nemertes, believes that calculating capex is often the easy part, but when it comes to putting numbers to paper, it’s determining a realistic opex that can be challenging.

“The tricky part is the operational expenses - how much am I saving in person hours, if a person doesn’t have to administer the storage, if it’s not taking up power, and not generating heat that I have to cool,” he explained. “That’s a lot tougher and I don’t think that can be a simple equation.”

Determining opex is indeed tricky, but once you’ve been able to calculate costs using the factors suggested above, you should be able to get started.

“You can’t figure out the savings if you don’t know what it’s costing you now.”

Ted Ritter, principal research analyst

Opex calculations are “relatively easy once you determine a baseline,” said Taneja.  He adds that although the first attempt may be difficult, the next go around should be much easier.

Despite this seemingly easy to follow outline, Ritter has come to realize that while calculating cloud ROI, there are often other hurdles many companies have to overcome.

“Cloud storage providers do make it pretty clear what the costs are. The real challenge comes if you try to do an ROI, you have to compare it against your in-house costs. The problem [our consultants have] found is that most organizations don’t have a handle on what storage is costing them in-house right now,” Ritter explained. “You can’t figure out the savings if you don’t know what it’s costing you now.”

Along the same lines as Taneja’s suggestions, Ritter believes the way to successfully calculate ROI is to look into the future realistically and understand your company’s upcoming costs.

“You have to say okay, I know over the next year I’m going to need 30 TB to handle storage for this application, maybe it’s back up, it depends, but I need this amount. Then I can calculate what that’s going to cost me to expand my infrastructure,” he explained. “I take that number to a cloud storage provider and calculate the cost there.”

Projecting growth and calculating for that growth, he said, is key.

Regardless of whether cloud vendors are providing ROI calculations, both Ritter and Taneja advise to check your own math with a different calculation. It can never hurt to look at the numbers on your own, and to be cautious of a vendor trying to oversimplify your costs.

“In these tough economic times, the bottom line is price, and it’s critical,” said Ritter simply. “Before somebody will move to cloud storage, which has problems associated with it – it’s different, it can have risks that you’re not taking on by keeping storage in house, it’s not an apples to apples comparison. The one factor that’s going to help make the decision is going to be the ROI model.”

Real-world example: VRX Studios uses Microsoft Azure storage

When VRX Studios started its Web-based MediaValet global digital asset management service late last year, VRX CEO David MacLaren decided to host it on the Microsoft Azure cloud. Vancouver, B.C.-based VRX already used Azure’s cloud for its compute and processing. The company added Azure Storage services when they brought MediaValet online.

MacLaren estimates that buying or building a storage system would have cost between $300,000 and $500,000 for hardware and software at the outset. He said he also would have required infrastructure in Europe and Asia to support his global business, and that would have doubled his initial investment.  Instead, he said, using Azure for storage allowed VRX to focus its resources on hiring developers to build MediaValet functionality so that customers can do things such as categorize and search digital files with metadata, and assign and manage user permissions.

“We eliminated at least 50 percent of our cost in bringing MediaValet to market by using Azure,” MacLaren said. “We didn’t want to make that large of an upfront investment in infrastructure. Azure allowed us to hand off all our infrastructure requirements. We tell them what we need, and we pay as we go.”

Microsoft charges by storage, usage and computing power consumed. MacLaren declined to disclose the amount of data he stores on Azure but said it’s “well into the terabytes.” His monthly bill from Azure will vary according to usage, but he said it will always be less than having to maintain an IT staff to manage his infrastructure.

“Our expenses can expand and shrink as the business changes,” he said.

(Senior News Director Dave Raffo contributed to this story).

This was first published in August 2011

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