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How Businesses Can Cut the Waste from Their Cloud Spend

By J.R. Storment on November 10, 2017
Cloud can be scalable and imbue businesses with a competitive edge. But what kind of waste lies ahead as everyone seeks to move to the cloud quickly?

Whether you’re a hot startup on the cloud or an enterprise migrating its way over, how do you know you’re using it right? How do you know you’re not being wasteful on the cloud? Do your teams have visibility into this?

I always think of the story about mustard magnate Jeremiah Colman. The story is that he made his fortune not from what his customers ate, but rather from what they left on the side of their plate. It’s somewhat the same with cloud. Cloud services are a technological approach that should save huge amounts of money, but now makes much of its profits from waste. Even the most elastic infrastructures can spend thousands and millions of dollars or pounds on systems, applications and processing that companies can’t account for and don’t need.

While a cloud spend management solution can help, teams need to understand where and why these costs come about before they can take real action to optimize cloud.

Many Are on Their Cloud Journey, But at What Cost?

Moving to and using the cloud puts businesses at a scalable advantage over the data center days of yore, yet many cannot determine if they are spending the “right” amount, or are unable to understand or allocate their expenditure with any degree of accuracy. For example, a business that spends seven figures a month on cloud might see a quarter or more of these resources being underutilized or lying idle. This is cloud’s equivalent of mustard lying untouched by the side of the plate.

Ineffectively monitoring cloud cost and resource usage is often the culprit. In our experience, one company ran up a $300,000 bill over a summer when their autoscaling diligently spun up extra resources to cope with demand, as scaling systems should. However, these systems did not turn the extra resources off when they were no longer needed, causing the overage. Another example is when one team forgot to spin down their cloud instances after a load testing session. While load testing can be a cheap and effective way at forecasting system integrity, in this instance it ended up wasting tens of thousands over a long weekend.

This waste goes against the power and opportunity that cloud can bring. During cloud’s infancy a decade ago, one of its primary selling points was the enormous cost savings over traditional models of IT procurement. By slashing CAPEX on infrastructure and software and providing transparent OPEX, cloud could lower costs and provide clear accountability over what was spent.

So, what happened along the way?

For one thing, the primary driver for cloud migration isn’t cost savings. Businesses adopt a “cloud first” strategy so that their teams can innovate faster, cope with ever-increasing data volumes and harness new technologies, such as the Internet of Things (IoT). Instead of concerns about costs, cloud-savvy leadership is more about squeezing out the last drop of competitive advantage. As one VP told me:

“It’s all about acceleration ahead of optimization… …until the bill hits $1 million a month.”

Starting to Solve the Budget Problem

Cloud purchasing continues to get more complex over the years. In the old world of data centers, a select handful of people were responsible for modeling the migration and allocating resources to get the new on-premises hardware going. Nowadays, cloud resource procurement involves dozens, even hundreds of people from executive to engineer.

This complexity and devolved responsibility creates a state where businesses are incapable of effectively tracking their cloud budgets. For example, they can’t separate their CAPEX from their OPEX and, ultimately, are unable to evaluate the cost of goods sold (COGS). Navigating the ebb and flow of these margins is critical to improving gross margins across the business.

This lack of visibility prevents organizations from optimizing the costs of their infrastructures. Running a single server comes with dozens of associated charges each hour (such as compute, network, storage, IOPS and other metrics), and each fleet of resources can create its own significant scope for waste and optimization.

While agility and innovation may have replaced costs as the driving force behind cloud migration, it doesn’t mean that wasting resources has to be the norm. It’s not uncommon for businesses to spend 25 percent more on cloud than they actually need, according to our own research. And given that Gartner estimates the public cloud market will grow to around a quarter of a trillion dollars by the end of this year, there are savings of around $60 billion to be made.

How Can Organizations Regain Control of Their Cloud Spending?

A first step is for businesses to establish a comprehensive roadmap for their cloud migration. We call this a Cloud Strategy (which we help many enterprises with through the expertise of our Cloud Financial Office).

Teams with a long-term cloud financial strategy determine their forecast expenditure and then map this against monthly goals. These costs should include total spending mapped against vendor discounts, such as Reserved Instance (RI) coverage; account for wastage, such as underutilized resources; and assign spending allocation to each team to ensure that every business unit is accountable for the resources it uses.

Controlling cloud spend isn’t about draconian rules, but about fostering a culture where people can access the tools they need to track their resource usage. It’s crucial to give teams the daily data they need to make better decisions. It’s important to remember that cloud optimization is an ongoing process of improvement and not a one-time solution.

Automating as Much as Your Teams Can

Financial success in cloud isn’t a single person’s responsibility: It is about creating a culture of cost management throughout the organization. It’s building lines of communication and trust that extend beyond the engineers and Devops team, involving everyone in the business.

Dashboards and push-button applications are a start, but not the full answer. The millions of cost line items and billions of cloud data points gets overwhelming. The goal of any cloud optimization initiative should be to automate as many of these processes as possible, removing the human element of decision-making and establishing a system of continuous improvement.

It is through steps such as these that some of the world’s biggest companies, such as Uber, GE and Cimpress, have saved hundreds of thousands of dollars a month while enabling CTOs to finally understand which business units are accounting for their actions and spending in the cloud.

It’s a Virtuous Cycle for the Prepared

With all the right optimizations in place, it might seem like the biggest losers would be the big vendors themselves. However, unlike mustard makers, it’s in their interests to help their customers combat the costs of cloud and scale with confidence and ease. It’s the original promise of the cloud. AWS, Azure and Google will compete over delivering that user ease and access to such scalability as competitiveness in the space increases.

It’s on enterprise teams to make the right strategic planning and optimization choices now to build the right cultures, governance and policies that will help teams succeed on cloud in the long run. Now that you’ve read through the what and why, considering using a cloud spend management solution like Cloudability to help manage your cloud resources should make a lot more sense. For those interested, give true cloud cost optimization a try.

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