Based on the IT journey of Michael Rickert

Colo vs Cloud vs local hosting

A comparison between Cloud hosting, Colo hosting (datacenter hosting), and local on-site hosting

At first glance, the low cost of cloud and co-location hosting per month may put them far ahead of on-site hosted servers, and in some cases they are. In today’s post I break down the cost per year, extrapolated out over twenty years, for a server heavy web app company, assuming a few different things:

  • On-site and colo server hardware is upgraded every 5 years
  • On-site and colo networking hardware is upgraded every 10 years
  • On-site space has already been acquired as part of an office building purchase
  • Servers cost ~$4,000 each
  • On-site will have a UPS battery backup system as well as a generator
  • Servers will run 24/7, no elastic servers in this setup

And Next, the server list breakdown:

  • 2 DC controllers
  • 2 email servers (exchange)
  • 2 SQL servers (extra ram)
  • 2 support servers (AV, WSUS, etc)
  • 2 load balancers
  • 2 terminal servers (windows remote desktop)
  • 4 nginx servers
  • 2 fileservers

Everything is set in pairs for redundancy and failover support, some of these servers could be merged together but this is the minimum at the moment for the existing environment.

Hardware and hosting costs

I chose DigitalOcean hosting for a few reasons, price being one and speed being the other. I also assumed a mean price for server and networking hardware, assuming purchase from a name brand with warranty (Dell in my estimations). With a refresh rate on servers of 5 years, and 10 years for networking equipment, there should be no issue with older slow equipment causing bottlenecks locally or at a colo. So lets look at overall costs first!

Datacenter On site Digital Ocean
UPS Battery backups N/A $30,000 per 10/y N/A
Generator N/A $30,000 per 10/y N/A
Space/rack usage 1600/mo N/A N/A
Power usage 400/mo N/A N/A
Server costs N/A N/A 2376/mo
hardware costs 82,000 per 10/y 82,000 per 10/y N/A
Maintenance N/A $10,000 per 10/y N/A
TOTAL (per 10 years) $322,000.00 $152,000.00 $285,120.00


The above comparison chart shows just where most of the datacenter costs come from, rack space and power usage costs. This is assuming two racks worth of space in the colo. Digital ocean comes in a bit cheaper and the pricetag of a flat 2376/mo may look good at first glance, but lets look at it when expanded out a few years:



Ouch! The cost of cloud hosting almost catches up with colo hosting by year 20! Next lets examine the yearly cost of each service and see if we can find out just when the tipping point is.

Yearly breakdown

year 1 (initial costs) $107,000.00 $28,512.00 $106,000.00
year 2 $108,000.00 $57,024.00 $130,000.00
year 3 $109,000.00 $85,536.00 $154,000.00
year 4 $110,000.00 $114,048.00 $178,000.00
year 5 $147,000.00 $142,560.00 $238,000.00
year 6 $148,000.00 $171,072.00 $262,000.00
year 7 $149,000.00 $199,584.00 $286,000.00
year 8 $150,000.00 $228,096.00 $310,000.00
year 9 $151,000.00 $256,608.00 $334,000.00
year 10 $152,000.00 $285,120.00 $358,000.00
year 11 $259,000.00 $313,632.00 $404,000.00
year 12 $260,000.00 $342,144.00 $428,000.00
year 13 $261,000.00 $370,656.00 $452,000.00
year 14 $262,000.00 $399,168.00 $476,000.00
year 15 $299,000.00 $427,680.00 $536,000.00
year 16 $300,000.00 $456,192.00 $560,000.00
year 17 $301,000.00 $484,704.00 $584,000.00
year 18 $302,000.00 $513,216.00 $608,000.00
year 19 $303,000.00 $541,728.00 $632,000.00
year 20 $304,000.00 $570,240.00 $656,000.00


As the above graph shows, by year 4 the cost per year of local hosting starts to outmatch cloud hosting, and by year 20 the cost is nearly half. If you need to temporarily spin up a bunch of hardware a cloud solution is best, but as soon as you plan for the long term it quickly becomes more expensive. This is why most companies opt for an elastic cloud based solution, to try and minimize the costs during non-peak hours and keep the costs more in line with traditional on-site hosting.


Lastly lets take a look at actual hardware costs and where the $82,000 per 10 year figure comes from:

Servers 4,000 each
Server cluster 16,000 per 5/y
networking 10,000 per 10/y
SAN 20,000 per 5/y
TOTAL 82,000 per 10/y

With new servers and a new SAN every 5 years, you can be sure you’ll have some pretty nice hardware over the long term.


Wrap up

Cloud computing has some amazing benifits, but as the above shows, they come at some amazing prices as well. This also touches on why more companies are choosing to have smaller office spaces and more of an ad-hoc team while going with the cloud/colo solutions. Since they don’t have the large cost of a full office building, they don’t have to deal with things like expensive heating/maintenance costs as well as dedicated office internet/electric. I’m all for a cloud based future with a distributed off-site workforce, but until that becomes the de-facto standard be sure to keep on-site hosting in mind, not only in terms of cost, but in terms of risk and availability.

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