3 ways businesses can reduce cloud costs

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Many people’s experience with cloud costs is limited to a monthly bill of around $10 that they receive from Apple or Google. But for tech companies that have to manage and process huge amounts of user data, it can be the second biggest expense after payroll. Indeed, when Snap went public in 2017, documents revealed that the company had over $3 billion worth of cloud services contracts with Amazon Web Services and Google.

And if you find your cell phone bill hard to understand, try understanding cloud charges. Companies like AWS, Azure, and Google offer thousands of options, with variations that can result in surprising overspends, whether it’s a startup that accidentally raised a $72,000 bill in a few hours of testing, or Pinterest that needs to spend an additional $20 million to accommodate the increase in user demand.

In fact, it is estimated that at least 30% – or $180 billion of the nearly $600 billion spent on the cloud globally – is completely unnecessary. The reasons can be as mundane as multiple copies of identical files or failure to clean up obsolete or unused resources. Often cloud costs are a complete black box. In our Saas Cloud Spend 2020 survey, approximately one-third of decision makers who responded I didn’t even know their company’s cloud spending as a percentage of annual recurring revenue.

Understanding the meaning of changing the use of the cloud in teams and contracts can seem like a mole game. However, by focusing on three principles – visibility, accountability and automation – companies find ways to combat cloud spending, often saving millions and avoiding layoffs.

Related: Is there an exit from the cloud with rising costs and vendor lockdowns?

Visibility: You can’t fix what you can’t see

The first step is to understand where your cloud spend is taking place. It’s not as easy as it might seem. The same features that make the cloud so convenient also make it difficult to track and control how much teams and individuals spend on cloud resources. Even the costs can be variable, depending on the type of service used, the resources used and the time of day or week.

According to the FinOps Foundation, a group focused on advancing cloud financial management best practices, most companies still struggle to keep their budgets even. The good news is that a new generation of dedicated tools can provide transparency. Asset tagging can automatically track which teams are using cloud resources, allowing you to accurately measure costs and identify overcapacity. Meanwhile, with cost anomaly detection in the cloud, users can receive notifications when the meter starts ticking rapidly. But transparency is only the first step to bringing costs under control.

Responsibility: Put someone at the helm

Companies wouldn’t dare implement a payroll budget without an administrator — or an entire HR department — to carefully optimize spending. However, when it comes to cloud costs, there is often no one at the helm.

Therefore, the second step is to establish responsibility and accountability for cloud costs. Step into new FinOps disciplines or cloud operations. Increasingly, organizations rely on these dedicated teams whose competencies can include everything from setting cloud budgets and negotiating favorable contracts to enforcing engineering discipline to control costs. Importantly, this is not an annual exercise, but an ongoing commitment.

To function, these teams must have the authority to create company-wide protective barriers. One of the reasons cloud spending is spiraling out of control so quickly is because teams have been insulated from the cost implications of using the cloud.

Suppose a developer is testing a new program or feature and has created a cloud machine for this purpose. It may seem easier to just keep the machine running than to shut it down and restart it. But budgets suffer when developers use that bandwidth during periods of lag. Multiplied by hundreds or thousands of users across the company, the waste of spending quickly adds up.

Related: Cloud data warehouses are a breakthrough for modern businesses. Here’s how to use them for growth and expansion.

Automation: the missing ingredient – AI

But even with a dedicated team monitoring cloud usage and needs, automation is the only way to keep up with complex and rapidly changing scenarios.

The sad truth is that much of today’s cloud cost management remains custom and manual, even in some of the most tech-savvy companies. In many cases, a monthly cloud waste report or summary is the only maintenance activity, and highly paid engineers are expected to manually remove abandoned projects and initiatives to free up space. It’s the equivalent of asking someone to delete extra photos from your iPhone every month to free up extra space.

Therefore, AI and automation are critical to identify and eliminate waste in the cloud.

Surprisingly, a recent FinOps Foundation survey shows that less than 40% of organizations have automated cloud usage or anomaly reports, cost overrun notifications, appropriate container matching, or other statistics. But this is only the first step of automation. The next step is intelligent and automatic waste disposal. I have seen Fortune 1000 companies reduce their cloud spending by as much as 40-50% by automating best practices.

For example, tools like “smart auto-stop” allow users to stop cloud instances when not in use, just as motion sensors can turn off a light switch at the end of a working day.

Businesses that rely on “discovered instances” to access excess capacity can deploy automation to help them get the best price, just as Expedia gives travelers access to better deals on hotels and rental cars.

Meanwhile, even more tools are being developed to help companies model the most cost-effective service contracts or sell surplus capacity on the aftermarket

As cloud management advances, companies are discovering ways to save millions, if not hundreds of millions. As next-level AI is now busy identifying and eliminating waste in the cloud, the backbone of the tech economy — data storage and processing — is undergoing a much-needed overhaul.

Related: Cloud Spend Optimization Challenges in 2022

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