May 15, 2016
By Jan Ozer Contributing Editor
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The Cost of the Cloud for Video Encoding: Crunching the Numbers

You need many different types of data—and lots of it—to make a good decision on cloud versus on-prem. I learned this recently while running a comparison for a consulting client with substantial encoding requirements. Multiple cloud and appliance vendors ran throughput tests to help determine pricing.

Interestingly, throughput doesn’t impact pricing for cloud vendors that charge via the SaaS model; you pay based upon minutes or GB of input/output. But multiple vendors—including Elemental, Telestream, and Encoding.com—offer the platform-as-a-service model (PaaS), through which you rent encoding capacity based on time, and encode as much as you can during that period. I priced Encoding.com using both models, and for this client, PaaS was much cheaper.

However, when computing PaaS pricing, details such as single-pass versus dual-pass really matter, because dual-pass can increase your encoding time significantly, with a corresponding increase in price. While there is no similar increase for SaaS pricing, there is a potential quality concern if dual-pass encoding isn’t offered. Ditto for quality-related adjustments—if set to max quality in the PaaS environment, they can increase encoding time and cost; if unavailable in the SaaS environment, they can detrimentally impact quality.

Obviously these same distinctions are critical when calculating how many encoders you need to meet ongoing demand in an on-prem scenario. When asking a vendor to compute throughput for you, be sure to specify both quality levels and the number of passes.

Another critical detail is how and where you perform adaptive bitrate packaging (ABR). Basically, you have two options: You can either package while encoding or deliver MP4 files to your origin server and package dynamically with Wowza Streaming Engine, Elemental Stream, or a similar product. Packaging during encoding increases the price of SaaS encoding, which again is based upon throughput in minutes or GB of video. For PaaS services and appliances, there’s little impact, since ABR packaging is a lightweight operation that takes few CPU cycles, which is why you can (and probably should) perform it dynamically at the server.

Once you have throughput details, you can price out encoding in the cloud, and the cost of the required hardware to encode on-prem. Now it’s time to look to other costs. Probably the best reference available is Encoding.com’s white paper titled, “Media Processing: Total Cost of Ownership, On Premises vs. Cloud-Based Encoding Workflows,” which was prepared with Nucleus Research. The white paper details three scenarios: open-source encoding on general-purpose hardware, enterprise-encoding software on general-purpose hardware, and enterprise-encoding appliances. The third was most relevant to my analysis.

In this scenario, the company required 31 servers, and the cloud was cheaper by about $200,000 after tax over 4 years. Dig into the numbers and you’ll see that a major component of this savings was related to reduced staffing costs. Specifically, the analysis assumed that on-prem encoding required 150 hours per month of IT time for “maintenance and upgrades,” 150 hours per month of IT hours on “capacity planning and development,” with another 150 hours of staff time lost each month ”by end users due to encoding delays.” According to the white paper, encoding in the cloud consumed none of this time, essentially freeing the company to cut or reassign significant chunks of three employees’ duties. Under fully loaded salary assumptions of $80K each for IT employees, and $70K for the other employee, this amounted to about $200,000 per year in staffing cuts, again, a significant component of the overall savings delivered by the cloud.

From where I sit, encoding in the cloud is a natural for spikes in encoding, such as for complete library retranscodes for a new format or device. It’s also a natural for companies that are committed to a cloud IT strategy for the bulk of their IT needs. If you’re on the fence about cloud encoding, particularly for consistent, ongoing encoding requirements, it may be tough to financially justify the transition unless you can identify specific staffers that you can cut or reassign when moving to the cloud.

This article appears in the April/May 2016 issue of Streaming Media magazine as "The Cost of the Cloud."