Cloud costs are spiralling so action is needed

The global economic situation is definitely challenging right now. Forecasts are all over the place and have a wide range of expectations. Thus, they contribute to the chaos and uncertainty, which isn’t ideal. As a result, businesses from around the world are now restructuring their budgets and are looking to optimize their costs as much as they can.

Naturally, this also extends to the cloud. And there are some cloud-specific cost challenges, too. During the past two years, a lot of companies jumped to the cloud and are now expanding their setups into multicloud and hybrid cloud environments. And a lot of them are doing it wrong…

Oh, woe the costs

According to a recent report by Anodot, 49% of companies find it difficult to control their cloud expenses. 54% admit their primary issues are the lack of visibility and monitoring of their basic cloud usage. It means companies are in masse still not able to master the art of cloud monitoring.

Also interesting, according to InfoWorld, is that 49% of respondents say the multicloud environments are complex for them and a challenge to manage costs properly. 50% are seeing that the cloud architectural complexity is key to cloud cost optimization.

Also, 50% of companies are saying the cloud pricing is way too complex for them which leads them to making wrong decisions and paying more. 35% also point out the lack of centralized cloud governance.

The report also asks about the overall cloud budget companies are setting aside. Around half say they spend less than a million dollars per year on the cloud. The rest spend more and 15% of them have the biggest cloud budgets with over $5 million per year.

No matter the size of the budget though, it seems companies are tackling very similar challenges – gaining true visibility of cloud costs, accelerating the migration of workloads to the cloud and more. They also point out that they are taking way too much time to notice spikes in cloud costs. And organizations are expecting on average 30% increase in their cloud costs for 2023.

So, what’s the message? It doesn’t matter the size of the company or the cloud budget – the cost challenges are the same and what makes a difference is the approach.

Where is the money going

Cloud costs are rising and will continue to do so, it seems. So, who’s getting the major revenues share? Data from Synergy Research Group gives us the answers for the second quarter of 2022.

Of course, there aren’t many surprises there. Spending for cloud services reached almost $55 billion for the second set of three months of 2022. You can guess the top three cloud providers – Amazon Web Services, Microsoft Azure and Google Cloud.

All of them are now categorized as cloud hyperscalers and they did increase their market share during the same period. It’s a case of the big getting bigger. As expected, it doesn’t seem like they are “eating” each other’s share, but on the contrary. They are expanding at the expense of the smaller players.

Amazon, Microsoft and Google’s combined cloud market share is now 65% for Q2 2022. This is a jump with 4% compared to a year before. And if the exchange rates weren’t so drastically different now compared to last year, the jump was going to be 6%, the analysts say.

Following the big three players, which are all from the USA, is the Chinese cloud giant – Alibaba which is fourth. After that we have a combined fifth place for IBM and Kyndryl and a tie for sixth – Salesforce and Tencent. Finally, Oracle closes the chart with a 2% share. All of the other vendors – Baidu, China Telecom, China Unicom, Huawei, NTT, SAP and others, have around 1% each.

Synergy’s data shows that the cloud infrastructure services market nets a healthy 29% growth of total revenue when compared to the second quarter of 2021. The 12-month revenues are reaching $205 billion, which is also a very nice result for the cloud service providers.

Basically, there are no surprises when it comes to the cloud market. The familiar top names keep their positions. Clients are loving the benefits of the cloud, but are still struggling to cope with some specific challenges. As a result, cloud costs are on the rise.

The problem is the data approach

And we are still not done with the not-so-good news. A study from Capital One from Forrester shows, that companies are dealing with yet another challenge. 78% of decision-makers are struggling to understand and identify what data should be in the cloud, what data they even have and how to use it. They aren’t even sure who owns it.

Because of this lack of data cataloging, data pros have to deal with other issues. So, for 80% of them they say they have to tackle poor data quality. 78% also point out the difficulty to understand the data.

But wait, there’s more. 82% also say that issues with forecasting and controlling costs is the result of these data ecosystem challenges. The decision-makers aren’t able to optimize their cloud computing choices of pricing models and the month-to-month cost variability is also something new to them. A lot of data pros are still used to the classic on-premises budgets where they could plan and budget every detail.

The new reality is that the cloud expands everything. With a lot more data gathered and in need to be analyzed and processed, there are new challenges to tackle. Sadly, there’s yet another issue that the research points out – decision makers are aware of the challenges, but they don’t have enough qualified employees to tackle them. The cloud talent shortage is still very serious.

Despite that, companies must continue to make their moves toward the cloud and improve their stance. The research shows that bosses are expecting changes in the cloud and data worlds within the next two years. Some of the top priorities like data protection and security will remain the same. Others will rise up as time goes by – among them will be tools to make data easier to find and analyze. Also of note will be tools to manage and reduce overall costs.

There’s even a warning from the research: decision-makers need to ensure they are getting the most out of their data, by addressing the key challenges. This will give them the opportunity to leverage data at scale, become agile and increase cost efficiency. “Firms that fail to do this will miss the moment and fall behind”, says Forrester.

So, how to hone cloud costs

Yes, spending on the cloud can be difficult to predict. It’s a very dynamic environment and things can and do change quickly and often. It’s the side-effect of being able to scale up and down as and whenever needed. So, mastering these details is the key between overspending on the cloud or achieving long term cost optimization and ending up paying less than on-premises setups.

“Organizations pay not only for how much data they are using but also how they are using that data,” according to Salim Syed, head of engineering at Capital One Software in an email to CIODive. It becomes even more of a challenge to govern data as within two years 84% of companies are expecting to use more than one cloud provider for their data. As such, multivendor usage will increase fourfold. Costs could skyrocket, too, if not prepared well.

One possible solution is adding finops to your cloud setup. It’s a relatively new cloud financial management practice. Finops brings together IT, finance, engineering, product developers, IT asset management, leadership and other resources as needed, VentureBeat notes.

It sounds complicated, but it seems to be working. There’s now a new Finops Foundation which gathers and advances best practices with the aim to also lead to some standardization and education.

The Foundation offers 5 strategies to deploy finops and use its benefits. First, start with a “cloud diagnostic”. This would mean a complete reassessing of the current cloud strategy by holding talks with the key department leaders.

Then move to team leads to identify competing or complementing goals. Also, solicit ideas and input from teams to see where they stand and get their feedback. Often, companies opt to hire outside experts to tackle this first step.

Next, use the “iron triangle”. This is a framework to balance cost, time and scope against quality. It’s a way to pinpoint excessive cloud spending and when it’s justified or wasteful.

A third step is to show departments how much they each spend on the cloud. This way their managers will be mindful of future cloud costs that can hurt their overall budget. Plus, it can lead to further improvement of the overall cloud usage and spending. Especially if these savings are going back to the department that has made them without hurting its productivity.

Next, is automation. It’s a tactic which has been often hailed as one of the big difference makers when it comes to cloud cost optimization. And you can indeed achieve great results, but it will depend on how good you’ve made your cloud strategy. If you have identified the areas where automation can help you the most, then by all means, do indeed add it to improve your workflow and free up the teams to tackle bigger challenges.

And finally, keep optimizing. Yes, that’s another classic piece of advice. Same as security. Cloud cost optimization is not a one-and-done effort. A regular analysis is crucial to make sure all of your efforts are achieving the desired results.

If you need to consult with experienced professionals on how to optimize your costs and what is the most suitable cloud solution for your business, do not hesitate to take advantage of the free consultation with neterra.cloud specialists.

Plus, remember that the cloud changes all the time in various ways – new technologies, new workloads, new times for peak and low loads, etc. So, you have to be on the lookout for these changes and agile to react accordingly as needed. It will seem daunting at first, but with time you will gain experience and it will become a regular part of your work. That’s when the real benefits start to come in.