Public vs Private Cloud: A Cost Tipping Point Guide for IT Professionals

It’s 2023, we know that a vast majority of organizations have adopted either a public cloud or private cloud. Within these organizations, we’ve noticed a significant challenge for the IT professionals is to determine the right placement of their dollars against Cloud Services provided by either Public Clouds or Private Clouds.

We took the time to layout a Key Services Map and Cost/Scale Guide to assist these professionals. It is important to us that these professionals understand they do have options and what key driving forces should be taken into account when making a decision. 

This analysis can be quite complicated, please bear with the evolution of this Public Cloud vs Private Cloud tipping point over time. To convince you of the importance, I’m jumping right into the numbers, then we’ll get back to the process. 

Total Cost of VM with Block Storage and Bandwidth – Public Cloud vs Managed Private Cloud

Did the numbers catch your eye? We hope so!  You can calculate private cloud pricing yourself using our Cloud Deployment Calculator.

Please Note: Each brand is a registered trademark of the company or entity listed. Information presented here was collected in September 2021. If you see any discrepancies or material you feel is inaccurate, please let us know.

Company or Product Names = Key

• Amazon Web Services = AWS
• Microsoft Public Cloud = Azure
• Google Cloud Platform = GCP
• OpenStack with Core Projects = OpenStack
• OpenMetal Private Cloud Core = OpenMetal
• VMWare vSphere plus Hardware = VMWare
• Nutanix Base plus Hardware Vendor = Nutanix

Terms

Public Cloud = Large infrastructure providers that sell you usage based resources one small unit at a time.

Virtual Private Cloud = A software construct that is used to create private networks so resources, like VMs, can communicate easily with each other.

Hosted Private Cloud = A small to large footprint Cloud leased to you by a 3rd party in their data center.  Learn More if new to you.

Private Cloud = A small to very large footprint Cloud where you may own or lease the hardware directly and place it in your data center or chosen colocation provider. Often referred to as an On-Premise Private Cloud but colocation is probably more common.

Cost and Scale Transitions for AWS, Azure, GCP, OpenMetal, OpenStack, VMWare, and Nutanix

To help compare across Public and Private Clouds by service and by cost, there are a few critical items that will swing your ROI evaluation of the options. First and foremost:

Does your company already have private infrastructure and staff in place?

This means that if you already have staff and data center space, you almost certainly have sunk costs, things that you already pay for, that you are not fully using. Space, power, core network capacity, IP space, and connectivity all fit within this. System administrators or DevOps staff are also common team members that will handle Cloud Administration.

If YES, if you have those, adding Cloud to your existing data center is often much lower cost than previously imagined and thus your tipping point to Cloud on-premise – aka Private Cloud – is lower.

If NO, you do not have those, then your tipping point is going to be higher to move to your own data center-based Cloud. When doing that, you are also likely to use managed services from the Private Cloud vendor until you reach a scale that lets you bring management in-house.

For a NO, most likely is that you will first go to “hosted private cloud” before going to your own data center based Cloud. The tipping point to go to Hosted Private Cloud is between Public Cloud and On-Premise Cloud. If you are well past the tipping point to hosted private cloud, then you will probably go to colocation in a DC. But you will save huge amounts, so there is that.

Know Your Public Cloud to Private Cloud Tipping Point

Absolutely critical in your evaluation is understanding the tipping points for certain types of resources.

The Tipping Points used in the charts below are organized around when Public Cloud becomes more expensive than alternative Clouds. Public Cloud, due to its minimum starting point of “1 small unit” is brilliant to get started, but becomes significantly expensive at a certain scale. The famous VC company Andressen-Horowitz published the The Cost of Cloud, a Trillion Dollar Paradox that talks about the loss of huge value for a set of companies caused by the high cost of Public Cloud.

That concept, boiled far down, has to do with when the cost you pay for the ease of use of the Public Cloud is overridden by the margin those companies are taking per VM, storage, or other resource. Their margins are very large and so your expense becomes very large once past a tipping point.

For example, using a single AWS, Azure, or GCP VM is quite economical since the expense of all the other things that go on around hardware is simply baked into the cost. But as your deployment grows, the high cost of the individual VM on AWS, Azure, or GCP versus a Private Cloud VM leaves enough dollars on the table to pay for all the parts around that VM.

To illustrate these let’s compare using an AWS VM compared to an unmanaged Private Cloud VM, building in discounts from AWS that you may or may not get. But here is how this happens.

Public Cloud VM Costs vs Private Cloud VM Costs Tipping Point

VM Cost Tipping Point by Number of VMs, Public Cloud vs Self Managed Private Cloud

In the above, a few thousand dollars will not cover self management costs. Running a cloud, even a small one, takes an admin 10-20 hours a month plus some support from off-hours staff. Well architected larger clouds get into the 60-120 hours a month at 1000 VMs, then scale up per node that is added. It is important to note that 24/7 coverage requires generally 3+ admins but well-architected clouds don’t require emergency alerts when common hardware fails. Redundancy is built in to not only protect the data and workloads, but to protect the admin’s time as well.

Public Cloud Bandwidth Costs vs Private Cloud Bandwidth Costs Tipping Point

Another very large expense in the public cloud is bandwidth. Outbound traffic is called Egress. It is calculated by GB, usually shown as TB though, of data transferred out of your service. If you have a VM, you are paying for the VM only, not the transfer of data. Egress is paid for separately.

Scenario 1

You started on Public Cloud and do not have physical infrastructure.

Scenario 2

You have a fairly typical private infrastructure footprint within a data center. Fairly typical means you have two or more high volume internet connections (think Level3/Lumen, Zayo, GTT, Cogent, etc.) with proper redundant networking hardware, several free cabinets or the equivalent, and 5+kW of unallocated power.

With that being said, you may find yourself between these, so reviewing both situations may help you.

Scenario 1 – No Physical Infrastructure

In this scenario we will look at the Public Cloud versus the Managed Hosted Private Cloud options. As mentioned above, the reason for this comparison is because the scale tipping point between Public Cloud and Hosted Private Cloud is significantly less then going from Public Cloud to On-Premise Private Cloud. OpenStack is not listed under this section due to the typical process of getting OpenStack. See Scenario 2. OpenMetal is highly automated OpenStack and can act as a stepping stone to self-managed on-premise OpenStack.

If you are in scenario 1 – which is very common now – this is a video for technical executives that are exploring how to use on-demand private cloud (aka private cloud as a service).  It covers quite a few public cloud versus private cloud topics and should give some additional insight.  It also covers workloads that you may go after first when moving.  I will add more to this article on this subject when I get more time.

If you currently need help, when you sign up you will get an account manager and can also reach me directly from within the interface.

Scenario 2 – Established Physical Infrastructure

In this scenario we will look at the Public Cloud versus the “On-Premise” Private Cloud options. With significant investment in your data center already completed you have what is called a “sunk cost”. Almost certainly you have the capacity in your data center now and adding additional hardware is typically quite appealing. If for some miraculous reason you have a 98% full data center with a fully used set of internet connections, well, kudos to you! With your savvy approach, you will already know Private Cloud is a better deal.

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OpenStack Service Detail and Notes

OpenStack is the 3rd most developed Open Source project behind Linux and Chromium. It provides Cloud Services and Hardware Automation. It is typically referred to as a “Private Cloud” when its Core Projects are the only Projects installed in an OpenStack. You may be interested in “What is OpenStack?“.

The Core Projects provide the following:

• OpenStack Nova – Virtual Machine based Compute
• OpenStack Neutron – Private Networking
• OpenStack Cinder – Block Storage
• OpenStack Horizon – Dashboard for users and some administration
• OpenStack Keystone – User and API access permission management
• OpenStack Glance – VM images are stored here
• OpenStack Placement – Tracks and controls resources and usage of them