Module 2 - Cloud Economics and Billing

Topics

• Fundamentals of pricing
• Total Cost of Ownership
• AWS Organizations
• AWS Billing and Cost Management
• Technical Support

Demo

• Billing Dashboard

1. Fundamentals of pricing

1. AWS Pricing Model

There are 3 fundamental drivers of cost with AWS.

1. Compute: charged per hour/second (for Linux) and varies by instance type.
2. Storage: charged typically per GB.
3. Data transfer: charged typically per GB.
   • In most cases, there is no charge for inbound data transfer, data that you put into AWS is free. Data transfer between services in the same region is also free.
   • For outbound data transfers, it is aggregated across services and charged at the outbound data transfer rate.

2. Pay for AWS

1. Pay for what you use:
   • At the end of each month, you only pay for the service that you consume for as long as you use it, with no large upfront expenses.
   • All services are available on demand, so you can start/stop using a service at any time, as there are no long term contracts required.
2. Pay less when you reserve:
   • For certain services like Amazon Elastic Compute Cloud (Amazon EC2) and Amazon Relational Database Service (Amazon RDS), you can invest in reserved capacity.
   • With Reserved Instances, you can save up to 75 percent over the equivalent on-demand capacity.
   • Reserved Instances options:
     • All Upfront Reserved Instance (AURI)
     • Partial Upfront Reserved Instance (PURI)
     • No Upfront Payments Reserved Instance (NURI)

• When you buy Reserved Instances, you receive a greater discount when you make a larger upfront payment.
  • You can pay all upfront and receive the largest discount. (AURI)
  • Partial upfront offers lower discounts, but they give you the option to spend less upfront. (PURI)
  • You can choose to spend nothing upfront and receive a smaller discount, which enables you to have free capital to spend on other projects. (NURI)

3. Pay less by using more:
   • You can get volume-based discounts as your usage increases.
   • Tiered pricing for services like Amazon Simple Storage Service (Amazon S3), Amazon Elastic Block Store (Amazon EBS), or Amazon Elastic File System (Amazon EFS) → the more you use, the less you pay per GB.
   • Multiple storage services offer options to help lower pricing based on your needs and how frequently you access your data.
4. Pay even less as AWS grows:
   • AWS passing savings from economies of scale to you.
   • Since 2006, AWS has lowered pricing 75 times (as of September 2019).
   • Future higher-performing resources replace current resources for no extra charge.

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5. Custom pricing: is available if the current pricing models don’t work for your project.
6. AWS Free Tier: enables you to gain free hands-on experience with the AWS platform, products, and services. It’s free for 1 year for new customers.
   • Services with no charge: Amazon VPC, Elastic Beanstalk, Auto Scaling, AWS CloudFormation, AWS Identity and Access Management.
   • There might be charges associated with other AWS services that are used with these services.

2. Total Cost of Ownership

1. On-premises vs. Cloud

1. An on-premises infrastructure is installed on a company’s own computers and servers. There are several fixed costs (capital expenses) associated with this traditional infrastructure:
   • facilities, hardware, licenses, maintenance staff, etc
   • scaling up can be expensive and time-consuming, scaling down does not reduce fixed costs.

To evaluate an on-premise solution, consider capital expenditure and long planning cycles.

2. A cloud infrastructure is purchased from a service provider who builds and maintains the facilities' hardware, and maintenance staff.
   • a customer pays for what’s used, so scaling up down is simple
   • costs are easy to estimate because they depend on service use.

To evaluate AWS Cloud solutions, consider flexibility, agility, and consumption-based costs.

2. Total Cost of Ownership

Total Cost of Ownership (TCO) is the financial estimate to help identify direct and indirect costs of a system.

• TCO considers the cost of a service + all the costs associated with owning the service.

• We use TCO to:

  • compare the costs of running an entire infrastructure environment on a specific workload on-premises vs. on AWS.
  • budget and making decisions for moving to the cloud.

1. Cloud: most costs are upfront and readily calculated using metrics such as RAM, storage, bandwidth, etc. → certainty over pricing estimates.
2. On-premises: must consider all direct and indirect costs of running, and maintaining a physical server.

Example: On-premises vs. All-in-cloud →You cloud save up to 96% a year by moving your infrastructure to AWS, saving $159,913 total.

3. AWS Pricing Calculator

Use the AWS Pricing Calculator to:

• Estimate monthly costs.
• Identify opportunities to reduce monthly costs.
• Model your solutions before building them.
• Explore price points and calculations behind your estimates.
• Find the available instance types and contract terms that meet your needs.
• Name your estimate and create and name groups of services.

3. Return on Investment Analysis

ROI can be used to determine that value that’s generated from the impact of moving to the cloud while considering spending and savings. It starts by identifying the hard benefits (direct, visible cost reductions, efficiency improvements), then soft savings.

Hard Benefits	Soft Benefits
Reduced spending on compute, storage, networking, security	Reuse of service and applications → define/redefine solutions by using the same cloud service
Reductions in hardware and software purchases (capital expenses)	Increased developer productivity and customer satisfaction
Reductions in operational costs, backup, and disaster recovery	Agile business processes that can quickly respond to new opportunities
Reduction in operations personnel	Increase in global reach

3. Case Study

Delaware North, a major food and hospitality company, originated in 1915 as a peanut, popcorn vendor. Today, it’s a leader in food service and hospitality industry.

Background:

• Growing global company with 200 locations.
• 500 million customers, $3 billion annual revenue.

Challenge:

• Company’s on-premises data center was becoming too expensive and inefficient to support global business operations.
• Constant upgrading aging equipment to deploy new solutions.

Criteria:

• Have a broad solution to handle all workloads.
• Able to modify processes to improve efficiency and lower costs.
• Eliminate busy work (like patching software).
• Achieve a positive return on investment (ROI).

Solution:

• Moved their on-premises data center to AWS.
  • Eliminated 205 servers (90 percent)
  • Moved nearly all applications to AWS.
• Used 3-year Amazon EC2 Reserved Instances

Six months into cloud migration, Delaware North realized benefits to its data center consolidation, security compliance, disaster recovery, and faster deployment times for new services. → the solution helps Delaware North operate with greater speed and agility.

4. AWS Organizations

Depending on the size of the business, sometimes it’s easier to assign separate AWS accounts to each department/team. AWS Organizations is an account management service used to consolidate billing of multiple accounts into an organization tree, with each branch representing a department/team.

*Organizational Units (OUs)

In general, AWS Organizations enables:

• Policy-based account management
• Group based account management
• Application programming interfaces (APIs) that automate account management
• Consolidated billing

1. Security with AWS Organizations

• Control access with AWS Identity and Access Management (IAM)
  • IAM policies enable you to allow/deny access to AWS services for users, groups, and roles, it cannot restrict the AWS account itself.
  • Service control policies (SCPs) enable you to allow/deny access to AWS services for individual or group accounts in an organizational unit (OU). → affect the entire account, including all IAM users.

2. Organizations Setup

AWS Organizations can be access through different interfaces:

• AWS Management Console (browser based)
• AWS Command Line Interface (AWS CLI) tools (issues command from your system’s CLI)
• Software Development kits (SDKs)
• HTTPS Query Application programming interfaces (API)
  • Use the API to issue HTTPS requests directly to the service.

3. Limits of AWS Organization

5. AWS Billing & Cost Management

• AWS Billing and Cost Management is a service that you use to pay your AWS Bill, monitor usage, and budget expenses.

From the Billing Dashboard, you can access other cost management tools, such as AWS Budgets, AWS Cost and Usage Report, AWS Cost Explorer and also the AWS Bills page.

• AWS Cost and Usage Report tool enables accessing comprehensive information about AWS cost and usage.
• AWS Bills lists the costs that you incurred over the past month for each AWS service, with a further breakdown by AWS region and linked account.
• AWS Cost Explorer allows viewing your AWS cost data as a graph. The Cost Explorer includes a default report that visualizes your costs and usage for your top cost-incurring AWS services in the last 3 months and a forecast number for the coming month.
• AWS Budgets enables creating notifications/alerts (through email or Amazon Simple Notification Service) for when you go over budget for the month, tracking budgets monthly/quarterly/yearly.

Billing Dashboard Demo

6. Technical Support

• Provide unique combination of tools and expertise:
  • AWS Support
  • AWS Support Plans.
• Support is provided for:
  • Experimenting with AWS
  • Production use of AWS
  • Business-critical use of AWS
• Proactive guidance:
  • Technical Account Manager (TAM) - only available via the Enterprise Support plan.
• Best Practices:
  • AWS Trusted Advisor: online tool provide real-time guidance to help you provision your resources following AWS best practices.
  • AWS Trust Advisor help optimize AWS infrastructure, increase security and performance, reduce overall costs, and monitor service limits.
• Account Assistance:
  • AWS Support Concierge

Support Plans

1. Basic Support:
   • Free of charge, offer support for account and billing questions.
   • Resource center access, Service Health Dashboard, product FAQs, discussion forums, and support for health checks.

The rest of the services are paid with unlimited number of technical support cases with pay by the month pricing and no long-term contracts.

2. Developer Support:

   • Have access to additional features: best practice guidance, client-side diagnostic tools, building block architecture support.
   • Support for early development on AWS.

3. Business Support (and Enterprise):

   • Full access to AWS Trusted Advisor and use case guidance.
   • Access to an API interacting with Support Center and Trusted Advisor. → automated support case management and trusted advisor operations.

4. Enterprise Support:

   • Exclusive access to a technical account manager, white-glove case routing, application architecture guidance, management business reviews and infrastructure event management support.

Case Severity and Response Time

7. Sample Questions

Question 0:

→ Answer: C. AWS Trusted Advisor

Question 1:

→ Answer: AURI, PURI, NURI

Question 2:

→ Answer: AWS Cost Explorer

Question 3:

→ Answer: False

Question 4:

→ Answer: Storage is typically charged per gigabyte.

Question 5:

→ Answer: Basic, Developer, Business, Enterprise

Question 6:

→ Answer: AWS Pricing Calculator

Question 7:

→ Answer: Economies of scale

Question 8:

→ Answer: True

Question 9:

→ Answer: Provides the ability to create groups of accounts and then attach policies to a group AND Simplifies automating account creation and management by using APIs.

Question 10:

→ Answer: False