Cloud Hangover? Getting a Grip on Cloud Costs
Cloud computing has reached the highly coveted “Slope of Enlightenment” according to Gartner’s most recent hype cycle. Cloud has moved beyond just being a revolutionary technology; it has transformed into a way of doing business. Case in point: according to sources close to the company, Apple is now spending more than $30 million a month on Amazon’s cloud, on track to reach $360M this year. While Apple and its large cloud spender cohorts may have a handle on costs, some organizations are waking up to a “cloud hangover” from all of the unaccounted cloud billing and usage. And with economic clouds on the horizon, businesses are starting to take a closer look at their escalating cloud bills to manage the cost of innovation.
In most cases, this “hangover” has less to do with how much cloud service providers like AWS, Google Cloud and Microsoft Azure are charging, and more to do with how unprepared and uneducated enterprises are when it comes to purchasing and managing cloud at scale. Making the internal shift from a CapEx data-center operating model, to an OpEx variable spend model has taken many IT, finance and business teams by surprise.
For example, in a recent 451 Research report called Cost Management in the Cloud Age, more than half (57%) of both IT and finance respondents worry about costs daily, and one in four claim poor cost management has affected innovation at their respective companies. Meanwhile, nearly two-thirds (73%) still manage cloud as a fixed CapEx cost rather than a variable OpEx expense. The pain is real, and education is needed to solve the lack of preparation.
Below are three practical remedies to help organizations minimize the cloud “hangover” and begin taking full advantage of cloud.
- Understand the cultural shift cloud has introduced into the workplace. The procurement of cloud and accessibility to what many presume is an unlimited resource with no direct visibility into spending for those consuming resources requires education for IT, finance and business teams alike. For example, engineering teams using cloud to build and support applications have little or no understanding of how to responsibly optimize spend. Similarly, finance has limited understanding of how to purchase cloud resources and is unaccustomed to providing the visibility IT needs to efficiently use this consumption-based resource.
- Gain visibility and optimize cloud spend. Built-in tools like AWS Cloud Explorer are a good place to start getting visibility into cloud spend. Some vendors offer basic features within their suites. And, for organizations that require greater control over cloud spend and usage, purpose-built cloud financial management solutions provide the visibility IT, finance and the business need to manage the speed, cost and agility cloud enables. This type of tool helps organizations take advantage of cloud provider discounts like pre-purchasing at discounted rates through Reserved Instances and Committed Use Discounts (CUDs). A purpose-built financial management tool also provides reports on cloud usage that empower finance to share information with other departments (“Showback”) and begin holding them accountable for their portion of the bill (“Chargeback”). Showback and chargeback are key requirements to managing cloud spend at scale, yet only 35% of organizations are providing this basic cloud management functionality because they lack the education and tools to do so.
- Get educated and don’t be afraid to ask for help. The rapid growth of cloud coupled with the traditional way of managing IT doesn’t mix. Organizations must break down inter-departmental silos and seek out best practices from peers in their industry to get educated and clear the confusion of the cloud “hangover.” A new mindset and cloud operating model are required to manage the unit economics of cloud. We hear companies refer to this new operating model as FinOps. This is why we formulated a non-profit trade association called the FinOps Foundation where peers across the industry including Spotify, Atlassian and Nationwide can learn and share best practices.
Cloud budgets have quickly become a material part of IT spend, increasing at five times the CAGR of traditional IT spend. Whether you are preparing to migrate to cloud or cloud-native already, now is the time to reassess your organization’s cost management strategy to continue fueling the innovation and competitive advantage cloud was meant to provide.
Feature image via Pixabay.