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Where to look for cost savings in the cloud

6 ways enterprises can achieve significant cost reductions by switching to public cloud services

The potential to save money is by no means the only reason for moving to the cloud. Many companies cite potential benefits such as greater agility, easier scalability, and even improved security as drivers for shifting data and applications to a cloud environment.

A cloud migration can actually end up increasing expenses for companies in certain areas, especially if a lot of updates and maintenance are required. Still, there are clearly lots of ways organizations can save money by moving data, applications, development, and other components of IT to cloud-based services.

Following are six examples of how enterprises can achieve significant cost reductions via the cloud. It’s important to keep in mind that the impact on costs can vary greatly, depending on a company’s current technology infrastructure, the types of applications it runs, the cloud services being used, and other factors.

Power down the data center

For many, a move to the cloud means a shift away from on-premises data centers. That’s the case at hospitality company Wyndham Hotels & Resorts, which realized cost savings of 45 percent by shutting down a data center and migrating applications to the cloud.

After spinning off from its legacy company, Wyndham decided to exit its corporate data center, working with partner Rackspace on the migration to the cloud.

“We realized early on that we were not going to be able to completely migrate to the cloud right away, especially with some of our legacy applications,” says Scott Strickland, executive vice president and CIO at Wyndham. “Through partnering with Rackspace, we determined that a colocation strategy made sense as a launching point toward a long-term IT evolution.”

The company began by identifying “anchor applications” that could be moved to a cloud-based, software-as-a-service (SaaS) model. These applications included its central reservation system, property management system, and content management system.

“Once we moved those applications into a SaaS model, we addressed probably 50 percent of the computing power in our traditional data center,” Strickland says. “In total, we were able to move about 200 applications to the AWS [Amazon Web Services] cloud,” with the rest of the workloads being handled in a colocation facility.

Wyndham originally had about 280 applications hosted in the data center. Working with Rackspace, the company was able to retire close to 70 of those and move the remainder to the combination of colocation and AWS.

The cost savings were driven by having fewer resources tied up in managing the data center, eliminating the need for data center leases, reduced maintenance costs for operating systems and databases, reduced hardware costs, and moving into a virtual environment.

Pull the plug on traditional telecom

For some companies, especially global enterprises, telecommunications costs can be among the most significant business expenses.

Cloud communications, in which telecommunications applications are provided over the Internet, offers ways to save money. 

With the advancements of voice over Internet protocol (VoIP) over the years, voice has become part of the shift to the cloud. Companies can replace conventional business telephone equipment such as PBXs with a cloud service, and the cloud can become a platform for voice, data, and video communications.

Several trends are pushing more companies toward cloud communications. One is increasingly distributed operations across branch and home offices. Another is that organizations need to provide access to enterprise networks via more types of devices such as smartphones.

Avery Dennison, a global materials science and manufacturing company, as part of a modern telephony initiative has been gradually replacing its legacy PBX systems with a cloud-based virtual phone system.

With this effort, the company uses capital more effectively by avoiding expensive on-premises products, says Nicholas Colisto, vice president and CIO. The cost for a local PBX is more than $1.5 million, he says, and while savings varies based on individual sites, Avery Dennison has saved 25 percent to 40 percent in communications costs.

Offload storage to the cloud

Data storage volumes have been growing at a significant rate over the years, as organizations gather more information from websites, mobile devices, e-commerce transactions, social media, enterprise applications, and other sources.

With the emergence of the Internet of Things (IoT) and edge computing, the growth in data volumes is likely to become even more significant in the coming years.

Many organizations are turning to the cloud to help handle their big data initiatives. The easy scalability of the cloud makes it a potentially ideal model for data storage. But beyond scalability, the cloud can also enable companies to reduce their total storage costs.

For example, Myers-Briggs Co., a provider of people development products and services, moved the primary data storage, backup, and disaster recovery for one of its facilities into a cloud-based, on-demand storage service.

By moving storage into the cloud service, Myers-Briggs saw a reduced total cost of ownership for data storage of at least 50 percent. Not including savings from reductions in time spent managing backup, storage, and disaster recovery systems, the company anticipates saving $150,000 over five years on the cost of backup system licenses and storage capacity.

Streamline data-intensive processes

Big data analytics has become a key IT initiative at countless organizations looking to glean insights from treasure troves of data. The cloud can deliver the processing power needed to support these initiatives, which can also lead to cost savings.

Read more on the next page...

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The Financial Industry Regulatory Authority (FINRA), a not-for-profit organization authorized by the US Congress to protect investors and ensure market integrity through regulation of broker-dealers, is a case in point. FINRA writes and enforces rules governing the activities of more than 3,800 broker-dealers representing more than 600,000 brokers.

Each day the organization oversees up to 75 billion market events, 99 percent of equities trades, and 65 percent of options trades in the US, applying data analytics to disclose any insider trading activity. FINRA shifted a key component of its IT infrastructure to Amazon Web Services, adopting AWS Lambda serverless computing to make data validation more efficient.

FINRA’s Order Audit Trail System (OATS) is part of an integrated audit trail of order, quote, and trade events for all National Market System stocks and over-the-counter equity securities. The organization uses OATS to monitor the trading practices of member firms, leveraging OATS data, along with other market data, to create the lifecycle of each order and monitor the trading practices of member firms.

Broker-dealers must submit daily electronic OATS data to FINRA, amounting to more than 50,000 files. When data is received, FINRA validates it to make sure it’s complete and correctly formatted based on a set of more than 200 rules. The system performs as many as half a trillion validations each day.

By using AWS Lambda, FINRA has increased cost efficiency by a factor of two, according to the organization. That comes from only paying for what it uses and not having to manage on-premises server infrastructure.

Create a unified infrastructure

It’s been said that a move to the cloud can create IT complexity for companies by adopting different types of services and adding multiple cloud service providers.

That’s true enough. But a broad move to the cloud can also add efficiencies and reduce costs when there’s an effort to unify various IT components within the same cloud environment.

Coverdell, a full-service marketing company that specializes in creating and delivering customized offerings for clients, in 2018 embarked on a “digital transformation” as part of a strategy to adopt a new direct-to-consumer sales model.

Part of the effort involved deploying services on Microsoft’s Azure cloud. Moving a group of websites to the Azure App Service platform-as-a-service (PaaS) enabled Coverdell to cut monthly hosting costs to less than $1,000 and significantly reduce maintenance efforts.

The cost savings and other benefits drove Coverdell to look into other Azure-based offerings to support the new customer-focused business strategy and modernize its infrastructure. The company decided to shift its core applications, data, services, and underlying on-premises infrastructure to the cloud.

The move to invest in Azure and unite its network of websites, applications, data, and infrastructure within the cloud environment resulted in greater cost savings than the company expected. It was able to eliminate $54,000 in monthly costs for colocation services.

And with a new, unified infrastructure, Coverdell expects to save an estimated $1 million over the next year or two.

Migrate e-commerce and customer analytics

For many companies, the cloud has provided a new way to offer e-commerce transactions to customers. In addition to providing easier scalability and flexibility based on fluctuating demand for capacity, moving e-commerce to the cloud also presents a way to reduce costs.

METRO, a business-to-business wholesaler and food specialist, migrated its e-commerce platform to Google Cloud Platform (GCP) and as a result can deliver more stable, scalable services for customers. The company also deployed a data lake on GCP to make customer data analysis more available inside the company, and to support integrated analytics and machine learning for new product development.

By “lifting and shifting” its e-commerce platform to Google Compute Engine instances, and using Google Cloud’s Virtual Private Cloud to create integrations with the company’s back-end systems, METRO reduced its infrastructure costs by 30 percent to 50 percent.

Perhaps even more welcome than these savings, the cloud migration brought significantly more stability to the e-commerce environment. Rather than having 10 virtual machines rebooting every week, the company rarely has to deal with one. Outages or periods of instability with the e-commerce platform are down by as much as 80 percent.