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A Computer Previous Page | Contents | Zoom in | Zoom out | Front Cover | Search Issue | Next Page M S BE aG F 44 COVER FEATURE Edward Walker, University of Texas at Austin Storage clouds are online services for leasing disk storage. A new modeling tool, formulated from empirical data spanning many years, lets organizations rationally evaluate the benefit of using storage clouds versus purchasing hard disk drives. Hard disk drives provide storage for a broad range of devices, from mobile phones to large IT server farms. In 2008, approximately 590 million hard disk drives were shipped worldwide, 1 largely driven by the vast amount of information our digital society is generating. For example, a report from researchers at the University of California, Berkeley, estimates that 92 percent of the five exabytes (10 18 ) of new information created in 2002 was stored on magnetic media, primarily hard disk drives. 2 At the same time, the business of selling infrastructure as a service through the Internet is growing. This technology trend, also known as cloud <strong>computing</strong>, lets individuals and organizations outsource their IT requirements to remote data centers, paying for only what they use. The cloud <strong>computing</strong> industry’s worth was estimated at more than $16 billion in 2008, and it’s expected to grow to $42 billion by 2012. 3 Several online services currently lease storage infrastructure. These storage clouds let anyone with a credit card purchase storage capacity online, paying a monthly fee for the storage they use. __________ Amazon.com’s S3 service (http://aws.amazon.com/s3), for example, lets users store COMPUTER TO LEASE OR NOT TO LEASE FROM STORAGE CLOUDS Walter Brisken and Jonathan Romney, National Radio Astronomy Observatory arbitrary objects of up to 5 Gbytes each in their online storage repositories. The S3 service uses a tiered pricing structure, with storage getting cheaper as more is used. As of late 2008, Amazon.com reported that users stored more than 40 billion objects in the S3 service. 4 With the significant growth of society’s storage requirements, and the availability of pay-per-use online storage services, when should a consumer consider using storage clouds? We focus on the problem of resolving this buy-orlease storage decision. BUY OR LEASE An organization’s decision to buy or lease long-term assets is often a critical dilemma. The literature describes numerous models to assist firms in resolving this acquisition decision. 5-7 However, there is a significant lack of work in applying these models to compare the cost of purchasing versus leasing storage from cloud services. Important studies have examined the cost of performing scientific experiments using the Amazon.com cloud services, 8,9 but these prior works are difficult to generalize outside the scope of the applications used in the studies. We believe our proposed model for evaluating the benefits of purchasing versus leasing storage from a cloud service is the first reported in the literature, offering a method for deriving a reasonable estimate of the best possible outcomes from the alternative investment choices. Furthermore, our model, which we formulated using empirical disk price data we’ve been collecting weekly from Pricewatch.com over many years, is agnostic to the application using the storage cloud. Our empirical data tracks the lowest prices for serial advanced technology attachment (SATA) disk drives for sale online since the Published by the IEEE Computer Society 0018-9162/10/$26.00 © 2010 IEEE A Computer Previous Page | Contents | Zoom in | Zoom out | Front Cover | Search Issue | Next Page M S BE aG F
A Computer Previous Page | Contents | Zoom in | Zoom out | Front Cover | Search Issue | Next Page M S BE aG F technology’s introduction in 2003. This data is significant because SATA is the predominant drive technology used in desktop and nearline systems. Most organizations use financial models as only one data point in deciding whether to buy or lease an asset. Other factors also influence their decision. 7 However, our proposed model bridges a critical gap in the literature and, more importantly, the market. Our model helps users understand the premium they’re paying for what seems to be an arbitrarily priced online storage market. Our research agenda aims to provide a quantitative framework for rationally reasoning about the cost of leasing infrastructure from cloud services, and extends our prior work on leasing from compute clouds. 10 Importantly, the systematic understanding of the real cost of leasing assets from cloud services lets users make rational decisions with innovative pricing structures. This promotes market transparency and ultimately supports a competitive product market. PRELIMINARIES A key principle in economic finance is the time value of money. Basically, this principle states that an investor always prefers to receive some fixed amount of money today rather than in the future. Hence, when making buy-or-lease decisions, investors often compare future cash flows in an investment over time, discounted to their present value by some interest rate. 5-7 The discounting interest rate used reflects the risk involved in raising the capital needed to invest. In equation form, the simplified standard capitalbudgeting format for calculating a purchased asset’s net present value (NPV) is as follows: NPV P = N T = 0 P P C T T (1+ I ) K T S + E , N (1+ I ) K where P is the annual profit resulting from the purchased T P asset in year T; C is the asset’s expected annual operat- T ing cost at year T; I is the firm’s cost of capital, defined K as the interest rate of its outstanding debt used to finance the purchase; 11 N is the asset’s productive life in years; S is the asset’s salvage value after N years; and E is the asset’s purchase (capital) cost. Similarly, the equation for calculating a leased asset’s NPV is as follows: NPV L = L P C T T ( ) T N T = 0 1+ I K LT ( ) T N T = 0 1+ I R L where C is the leased asset’s expected annual operat- T ing cost at year T; L is the lease payment at year T; and T I is the interest rate for financing the lease payments. In R this formulation, the lease’s financing rate is generally regarded as smaller than the cost of capital, I , because of K , Table 1. Parameter terms in the buy-or-lease decision model. Term Description Cost of electric utility ($/kilowatt hour) Size of purchased disk drives (Gbytes) Proportional difierence between human efiort in main - taining a purchased versus a leased storage infrastructure ϒ Used disk depreciation factor on salvage ([0.0, 1.0]) C Disk controller unit cost ($) H Annual human operator salary ($) T I Risk-free interest rate (percent) F Κ Current per-Gbyte storage price ($/Gbyte) LT Pc PD VT Expected annual per-Gbyte lease payment ($/Gbyte/year) Disk controller power consumption (kW) Disk drive power consumption (kW) Expected storage requirement in year T (Gbytes) the involved payment structure’s predictability. 5 With this NPV formulation for asset purchase and lease, investors can make the buy-or-lease decision using the following criteria: If the incremental NPV (NPV) 0 buy; if NPV < 0 lease, where NPV = NPV P – NPV L . DECISION MODEL We derive a buy-or-lease decision model that calculates the comparative NPVs from storage purchase versus lease. Our model accounts for the expected capital expenditure from SATA hard disk drive purchase, replacement, and end-of-use salvage. It also accounts for the expected operational expenditure for utility consumption and human operator cost. The “Derivation of the Decision Model” sidebar describes how we derived our decision model. We summarize it as follows: If NPV 0 buy; if NPV < 0 lease, where C − E + L T T T ΔNPV = ( 1+ I F ) T N S ∑ + − C N T = 0 ( 1+ I F ) S =γ ∗ Ω∗⎡⎢ V ⎤ ∗ K ∗e T ⎥Ω −0.438T C =−ρ∗H − 365 ∗24 T T ( ⎡⎢ ⎤⎥Ω ) ( )∗δ ∗ P + P ∗ V C D T ( ⎡⎢ ⎤ − ⎡⎢ V ⎤ ⎥Ω T −1 ⎥Ω )∗Ω∗K ∗e −0.438T E T = 1.03∗ V T Table 1 lists the model parameters. We assume ⎡V⎤ fl is an operator returning the minimum number of fl-sized disk drives needed to store V Gbytes of data. The derived terms S, C T , and E T represent the expected end-of-life disk salvage value, the operating cost in year T, and the capital cost in year T, respectively. EXAMPLE APPLICATION We used our decision model to evaluate the advantages of purchasing versus leasing storage from a hypothetical storage cloud vendor. . APRIL 2010 A Computer Previous Page | Contents | Zoom in | Zoom out | Front Cover | Search Issue | Next Page M S BE aG F (1) 45
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