Despite economic uncertainty, cloud costs are skyrocketing. Here are four ways to optimize cloud spending.
Following years of healthy growth, cloud adoption accelerated rapidly to accommodate pandemic-driven adjustments necessary to support the remote workforce. Despite the proven operational benefits, this explosive growth has had one glaring side effect — runaway spending.
Cloud spending now consumes nearly half of the average company’s technology budget, and that’s not likely to change anytime soon. Forrester analysts predict worldwide public cloud spending will surpass $1 trillion by 2026, almost four times pre-pandemic levels in 2019.
Huge, multinational organizations naturally account for the bulk of that spending, but even small-to-midsized businesses are experiencing cloud sticker shock. According to Flexera’s 2022 State of the Cloud report, more than half of SMBs now spend more than $1.2 million annually on the cloud.
Most organizations are looking for ways to optimize their cloud spend in the coming months. The Flexera report suggests there’s a good deal of room for cuts, finding that a third of cloud spend is wasted on unused or underused resources.
While organizations commonly overprovision cloud resources to ensure application availability, wasted resources are often the result of a poor cloud management strategy. The self-service nature of the cloud allows companies to acquire cloud resources on an impromptu basis — almost anyone with an Internet connection can spin up new infrastructure, applications and services as they feel the need.
Several other variables can impact cloud pricing. Software licensing costs can be significantly higher for cloud instances — double that of an on-premises deployment, in some cases. Sales taxes, federal regulatory fees, long-distance access charges and a variety of administrative fees can increase per-user costs by up to 40 percent. Pricing models for connecting to cloud resources can vary dramatically by provider, which makes billing especially unpredictable in multi-cloud environments.
“Multi-cloud is becoming the norm, so many companies need to manage extremely complex cloud environments,” said Jan Erik Aase, a partner with the ISG tech research and advisory firm. “Cost optimization is a top priority.”
Here are four ways organizations can optimize cloud spending:
Implement Cloud Governance
Surveys find that only about a quarter of companies have a formal cloud strategy, and nearly half acquire cloud resources on an entirely ad hoc basis. This approach makes it extremely difficult to effectively track and manage cloud resources. A formal cloud governance framework will create guardrails and improve an organization’s understanding of what cloud resources are in place, how those resources are being used and which may not be needed. Frameworks such as Microsoft’s Cloud Adoption Framework for Azure establish rules, policies and processes that formalize how an organization will access, use and retire cloud resources. Such oversight is essential for managing risk, controlling costs and supporting business requirements.
Reduce Egress Fees
Gartner reports that up to 80 percent of businesses routinely experience cloud cost overruns. That’s often due to unpredictable data egress fees that cloud providers charge for moving data out of the cloud. Large data transfers can add thousands of dollars to a company’s monthly bill. Data egress fees can be dramatically reduced with a hybrid cloud architecture in which applications are hosted in the cloud but data is kept on premises. Such a “cloud-adjacent” storage solution eliminates many costly data transfers. Cloud applications and services can pull data from the in-house data repository at no cost because providers don’t charge for data ingress.
Cloud Repatriation
The need to move quickly to facilitate remote work during the pandemic led to many hasty cloud migration decisions. Very often, organizations didn’t fully develop long-term goals or use cases for these moves. They are now finding that the cloud offers no significant advantages in many instances. Repatriating some applications, data and workloads from the cloud and back to on-premises infrastructure can often improve performance while reducing cloud spending. Ninety-six percent of IT decision-makers who have repatriated workloads or applications cited cost-efficiency as the prime benefit, according to a survey by the Andreessen Horowitz venture capital firm.
Implement FinOps
A leading benefit of the cloud has always been the ability to shift spending from large, upfront capital expenses (CapEx) to more budget-friendly operating expenses (OpEx). However, ongoing OpEx spending can sometimes cost more in the end. FinOps, short for financial operations, is a financial management discipline developed to manage OpEx across an organization. When used for cloud spending, it enables companies to better track their cloud resources and impose accountability for cloud usage.
