This blog post provides you basic knowledge of the Total Cost of Ownership (TCO) concept and its relation to AWS. After reading this post, you’ll understand better the benefits of AWS solutions based on TCO.
TCO is the initial purchase price of an asset plus its operating costs. It covers all costs of a system over its lifetime. With TCO you can compare the costs of operating services by yourselves (on-premises or in colocation facilities) or when utilizing AWS services.
Using AWS can remarkably reduce TCO when compared to the traditional data centers. Besides physical equipment, data centers require software, power, cooling, and IT staff. Especially the maintenance costs can increase quickly in data centers. In addition, in traditional data centers, the mismatch in lifecycles and payment cycles can result in higher TCO than expected.
Usually, data centers are built based on peak requirements meaning that they run on 75 percent capacity. Instead, AWS scales, so you don’t have to pay for extra capacity that goes unused.
The reasons for lower TCO with AWS can be wrapped into four key issues: 1) low variable cost, 2) economies of scale, 3) scalability, and 4) multiple pricing models (e.g. demand pricing or spot pricing).
It has also been analysed that TCO benefits increase over time, as there is a learning curve for innovation and optimization. The increase is measured to be triple after 36 and eightfold after 60 months.
One of AWS’s value propositions is agility. AWS allows customers to test and fail quickly at a low cost, so new ideas can be tested with lower risk. Therefore, innovation in the cloud is less risky than with traditional infrastructure. As the risks are low, the amount of innovations might increase because there is more room for mistakes and successes. Pace of innovation is also boosted with frequent updates that customers would have to pay for themselves if they operated their services by themselves on-premises or in colocation facilities.
Furthermore, other value propositions are platform breadth and global reach. Customers no longer have to manage their own infrastructure, as AWS has resources to run any workload. Reach refers to 26 availability zones and 51 edge locations. Read our last blog post about the data center in Stockholm here.
As a conclusion, the true savings come from accurate capacity expenses, lower operating expenses, variable costs and pricing tiers. The AWS provides agility to processes and through that aids the company economically.
If you’re interested in learning more on TCO, you can compete TCO and Cloud Economics from AWS’s own platform and earn an accreditation. Or if you are interested in calculating your own TCO costs, AWS offers a TCO Calculator: awstcocalculator.com
We are also here to help you around, so don’t hesitate to contact us if you need assistance with AWS.
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