There was another configuration of this system, which used 750-GB SATA drives and cost considerably less than the version with 300-GB SAS drives. It runs a bit over $740,000 for 50 TB. That system too looks pretty expensive compared to the Amazon offering (but remember, we've just stored data there--we haven't done anything with it).

Looking at EqualLogic's current systems, we could choose either the 6510 series or the 6500 series. We'll opt for performance and choose the PS6510X, which uses 600-GB SAS drives. The RAID 50 capacity of a fully configured system is 21.7 TB, with a list price of $123,000. We'll need about 2.3 of these systems, for a total of $283,400. If we opt for the 2-TB SATA drives instead, the total cost drops to about $103,200. So the 2006 high-performance system costs 392% more than a present day system. The 2006 lower-performance option costs 718% more than a present day system.

Amazon's storage system price drops are off by a factor of 10 to 20. But wait, you say--that EqualLogic system looked very expensive in 2006 and still doesn't look all that cheap compared to the current Amazon price. Who cares if they aren't adhering to a logarithmic drop in price if it's still a comparable cost, and IT loses the management headache?

Here's the catch: Amazon is pretty reasonable about the cost of writing and storing data, but when you start using its service, there are additional costs. If after processing (which also rings the cash register) you need to read a fraction of that data back, that's a new significant cost. Reading 10 TB a month will cost you another $1,200 per month in today's prices. That's another $57,600 over four years. During processing, you'll read from and write back to the 50-TB store millions of times each month. Let's estimate a million reads and writes a month--that adds another $10,000 a month to the bill, or $480,000 over four years. Over the four years of using your 50-TB data store in Amazon's cloud, your S3 bill alone could easily be in the million-dollar neighborhood.

In 2006, an analysis of using AWS S3 storage versus buying and using your own iSCSI system over four years would have shown that either would cost about $1 million. Given that you lose the management headache, the AWS proposition might look pretty good. But if you do the same calculation today, AWS costs a bit less than $1 million. However the iSCSI system cost is down in the $100,000 range. AWS becomes a very hard cost to justify. And clearly, if Amazon doesn’t change its ways, its model will be dead in another six years.

Normally, the value proposition for cloud services must involve some sort of reduction in your own internal costs beyond simply not having to buy hardware. The idea is that you can reduce staff or repurpose staff to work on more strategic projects, or bring to your company a new app or capability that you wouldn't otherwise be able to provide.

With IaaS, that's almost certainly not the case. You still need to understand your application and its needs, from storage to networking to processing. You also must learn the new art of pay as you go. My calculations here leave off many important elements, partly because I didn't want to weigh down this column with minutia, but mostly because the minutia is unique to every company. Only you know how many people it'll take to run an app in the cloud versus in your data center, or what your labor costs are, or what your capital costs are, or what the risk factor should be for running your app on someone else's hardware instead of your own.

Here's my bottom line: The fundamental value of IaaS is flawed, unless you need it for cloud bursting or a similar seldom-used application. In any case, you need a very sharp pencil to figure this stuff out, so making a buddy of someone in the business office wouldn't be the worst thing you could do in the evaluation.

The value proposition is vastly different for platform and software as a service, but no matter what you do, ask hard questions--like where the heck did my Moore's Law advantage go? Which is to say, why are IaaS prices dropping linearly, when hardware prices are dropping exponentially? It's the difference between percentages and orders of magnitude.

And above all, work the numbers for yourself. I'm willing to bet that for IaaS, it'll rarely make sense as a strategic IT resource.

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