AWS's calculator and the assumptions the threw into it pretty much proves they aren't cost effective except compared to other cloud providers. They basically 'made up' the self hosted numbers. At $DAY_JOB, our self-hosting costs at a colo facility are something like 33% the cost of using AWS.
The question is, what happens when the cloud is cheaper than doing it yourself?
Checkout online.net vs. any of those ;)
The cost comparison is usually skewed in the cloud's favor because people tend to compare "server-quality" local hardware with cheaper-than-basic-PC level hardware in the cloud. The real win here is that you don't need super fancy hardware to run fairly reliably. It's not just the hardware costs, it's that when you run "unusual" hardware, you're going to have to do more administration/training. Beyond that, the cloud's advantages are trickier.
I think commoditization of computing - which is what the cloud is all about - is a valuable trend. But the benefits of specific clouds are often vastly oversold, suggesting that it's somehow magic pixie dust that avoids all sysadmin duties; or that it's the only or best way to limit those costs. Also, there's this idea that you really, really need multiple redundant servers for ever menial website out there, because that three-hour outage of your cats pics is going to be terrible. And that presumption makes the cloud more attractive, since presumably outages there simply mean you spin up a new instance (even though that is also not always so simple).
One of my duties as an IT manager in a big enterprise a few years back was running an install group. 7-10 FTEs, two trucks and lots of budget for rental vehicles and expenses. Most of their job was installing servers in the field and arguing with landlords about specific requirements we had (ie, 30 amp electric service, a/c in the closet, certain types of locks, etc)
Today? The office's admin calls whomever the preferred telco partners are and gathers quotes for internet service. That group is gone.
Also, never underestimate the cost of bureaucratic waste. In the place I work in now, I can probably jot down 6-10 names whose main work functions could be replaced by pull down menus on a webpage. When you outsource parts of your business, those functions tend to go away.
I've done some analysis for a large company that spends about 500 million a year on IT infrastructure. Biggest expense? People, second network, after that trails mainframe and Microsoft OS licensing as well as Oracle. Server hardware cost everyone loves to talk about but actually was quite low.
Things like AWS cut network, people and can commoditize vendors such as Oracle and MSFT. Biggest savings is on not wasting time on racking hardware.
But thinking about fundamentals, a few years out, why do you think self-hosting will still be cheaper? What is it in self-hosting that economies of scale of AWS/GCE can't crush?
http://www.informationweek.com/cloud/infrastructure-as-a-ser...?
They don't make that on AWS, in gross revenues. This is similarly true of most hardware inside a modern server. They can make small improvements but they can't magically take over the CPU market or any of the other core components in a 'big way'.
2) Creating all that in-house software automation is complicated, difficult, and expensive. This software isn't a requirement for in-house hosting.
So they need to crush the margins of their supplies [power; bandwidth; hardware] to the point that they can get their own margin on top of that + cover the cost of a bunch of custom in-house software development. For a stable workload...that just isn't going to happen.
AWS isn't going to cut their prices 33% after the largest price cut I've ever seen them make in April, let alone the 67% they'd need to.
Sure, in 10 years, they might manage it. I don't see it happening faster than that.
The only advantage of scale is being able to oversell, e.g. running one customers workload during their peak hours and another customer on the same kit at theirs.
real estate - don't they explicitly look for cheap real estate and tax breaks?
electricity - cloud providers save a lot on electricity by choosing carefully their locations. Facebook built a datacenter in the Arctic, I don't see your average enterprise doing that.
- x86 hardware. They're spending a lot less by having their own custom hardware
- engineering talent. They should be saving by using local talent from elsewhere, not Silicon Valley or NYC wages. IBM does that.
http://www.slate.com/articles/technology/the_efficient_plane...
http://www.businessweek.com/articles/2013-10-03/facebooks-ne...
I never said it was worthless, just for alot of cases it doesn't make sense.