Self-hosting vs Cloud-hosting costs

Posted on: December 22, 2010

Is there hard ROI to use a cloud IaaS instead of a server in your garage/basement/on-premise datacenter? I think there increasingly is and justifying self-hosting is getting increasingly tough.

I would actually go as far as posit that you can now get a server in a public datacenter at price comparable to your electricity bill alone!

If you don’t believe me – let’s do a quick math.

Mark Kolich noticed in his blog that the server he had running at his home was consuming 220 W, which at the consumer electricity costs of 12-cents per kWh means:

0.220 kWh * 12 cents = 2.64 cents per hour

Almost 3 cents/hour for electricity alone not taking into account: labor, server hardware amortization, data-storage costs (replacing a failed disk), cooling costs, ISP costs, security costs (routers, firewalls, etc.), power backup costs (a UPS) and so on. Mark notes that he could have probably bought a newer more energy efficient server – but the required investment would not justify the savings.

The shocking part is that the recent price competition of cloud infrastructure (IaaS) and platform (PaaS) vendors took the current cloud servers costs to roughly the same order of costs. Here’s a quick survey of a few major cloud players:

  • Microsoft is rolling out their 5 cent/hour option (with additional further discounts if you pre-pay for reserved use – e.g. say you have a bunch of instances which you have running all the time and you are willing to pre-pay for the next few months).
  • Same thing with Amazon: minimal price (although for a slightly more limited version) is already in 2 cent for Linux / 3 cent for Windows instance area, with reserved/pre-paid option getting as low as 0.7 cents/Linux & 1.3 cents/Windows.
  • Rackspace pricing starts at 1.5 cents/hour for Linux, and 8 cents/hour for Windows.

My take on these numbers is that you need to have a really good reason to go into hosting when there is so much price competition in that space and the margins are going down so fast.

The only good reason I can think of is hosting being your competitive advantage in some way. For example, being a local hosting company in a country which legislation is making it hard to use foreign datacenters. Or offering some level of compliance which public hosters cannot provide. And as a matter of fact both of these differentiators are gradually going away with the vendors quickly getting all the possible certifications and compliance stamps you can think of, as well as opening datacenters around the globe.

Cloud is cheaper than your own hosting regardless on how you calculate the costs. Get used to it.



4 Responses to "Self-hosting vs Cloud-hosting costs"

You just proved that it is too costly to run a single VM on dual-CPU Xeon host. This is hard to argue… does not make any sense to do it, and this is why virtualization exists in a first place.

The server in question can easily run 25 light-weight web servers such as the one OP uses, with peak consumption of 250-300 Wwatts. That is about 0.1 cents per hour per VM, based on numbers above. I would like to see a cloud provider beating this price.

Sure, few need this many VMs at home. This is why I run my blog on my Atom-based nettop. With about 25W (10x of the above server) peek power consumption, it can easily run a few Linux VM (I only need 2). I would suggest that OP does the same, but he has comments disabled in his blog, so I cannot enlighten him 😉

Anton, yes, there is no magic here – and virtualization is one of the ways (plus higher utilization with dynamic balancing, plus spot trading, plus smaller number of humans, plus economies of scale for elictrity and cooling, etc.) that IaaS providers manage to be profitable despite prices going down so steadily. My point is that I’d argue that at this point in time self-hosting for most smaller companies and individuals makes very little economic sense. The margins in IaaS on small scale just don’t make it worth it.

You left out one huge variable – bandwidth costs – the factor that doesn’t seem to be changing in the “Cloud Revolution”. Compare this Rackspace cloud server with a much higher spec dedicated server from

Rackspace: 2GB RAM/80GB disk/800GB band./mth. = £1660/year
Bytemark: Athlon II X2/2GB RAM/2 x 500GB disk/800GB band./mth.
= £900/year

That makes the cloud offering 84% more expensive.

Good point. Bandwidth is an interesting one. IaaS vendors charge for it – but it whether or not this is substantial depends a lot on the application profile. I know that from my experience working on – compute is by far a bigger expense item; storage and bandwidth are way smaller.

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