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September 27, 2021
4 Min Read
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From its growing traction in the early 2000s, the concept of cloud computing has been a dream come true for IT managers. Rather than owning and managing computing infrastructure outright on-premises, for the first time, they were able to rent (or pay as you go) applications, storage and services in this ethereal cloud. At its introduction, the promises of the cloud were like a visit to a virtual chocolate factory, where greater delights were found around every bend.
No longer does IT have to deal with software updates, security, scalability, or system maintenance of racks of computers in the physical data center. Software is seamlessly updated in the cloud, applications can be created swiftly, storage and security are assured by the cloud provider, and IT is freed up from serving as the night watch, ambling down cold data center aisles looking to correct ill-behaving servers.
Another benefit is that for this decadent feast, the costs initially appeared to be too good to be true. With cloud computing services, companies avoid the upfront fee for physical infrastructure and the manhours to maintain it. They only pay for what they use.
It’s no wonder that according to Forrester, the global public cloud infrastructure market will grow 35 percent to $120 billion in 2021.
Yet, as cloud adoption grows, so too does sticker shock. While you only pay for what you use, what companies are using is quickly adding up. According to a recent blog article from Martin Casado and Sarah Wang of the venture capital firm, Andreesen Horowitz, “of the top public software companies currently utilizing cloud infrastructure, an estimated $100B of market value is being lost among them due to cloud impact on margins — relative to running the infrastructure themselves.”
Why Are Cloud Costs Rising?
According to Synergy Research Group, enterprise spend on cloud infrastructure services was close to $130 billion in 2020 -- a 35% annual increase -- yet spending on data center hardware and software dropped by 6%. Cloud costs continue to rise because of the increasing demand, but it’s also because of the incremental add-on services that continue to be rolled out by the cloud providers and silently creep into subscription costs.
Software developers for the first time are playing integral roles in driving innovation across the enterprise. Line-of-business workers have become emboldened by the ease-of-use and ubiquity of the new cloud services. Microsoft Azure, Amazon Web Services, and Google Cloud are making it too easy to offload API and microservice management to them. There’s also the lure of letting AWS or Azure manage your database, build in data redundancy through SSD storage, scale web service or host websites.
And part of the reason why rising cloud services costs go undetected until they’re astronomical is that they can seem like small monthly fees without a lot of financial impact, but when they’re coming from many sources utilizing the cloud platform, they add up. As cloud service fees become much more complex, even the most experienced of CFOs and finance teams can find it hard to navigate them, never mind identify spiraling trends.
How to Keep Cloud Costs Under Control
While a full “repatriation” of services away from the cloud won’t happen anytime soon and probably ever, some companies are opting to shift the development back to the traditional way. They’re utilizing open source to create and maintain their own APIs and microservices, building their own solutions from scratch or outsourcing software management when IT resources are limited.
Yet, there are ways to keep cloud costs in check while reaping its benefits. Consider the following four ways:
1. Take a tech audit prior to cloud adoption. It’s important to first evaluate all existing resources to determine what your IT costs are before transitioning to the cloud. When you know what resources you’re currently using, you can more accurately predict cloud costs.
2. Establish a Center of Excellence. Establishing a cloud Center of Excellence (COE) or group of champions to lead cloud governance and spend, is a good way to optimize the cloud. It’s important, however, to make sure the team is comprised of both IT and business leaders to ensure all needs are being met.
3. Effectively manage cloud contracts. Much of what companies are paying for in their monthly cloud contracts is not being used, or they’re not taking advantage of discounts. While contracts and monthly bills can be quite complex, it’s important to closely analyze them to uncover cost savings opportunities and see where specific services are being under-utilized.
4. Leverage a cloud management platform. Automated solutions can give you greater visibility into cloud capacity, usage and spend. As a term coined by Gartner, these tools help you implement administrative control over private, public, and hybrid clouds.
For IT managers and software developers who are under pressure to provide more and more capabilities to an increasingly tech-dependent organization, cloud services can seem like a dream come true and they can become like kids in a chocolate factory. It’s important, however, to think twice before devouring each service offering and strategically determine if the price for entry is worth it.
About the Author(s)
COO and Co-Founder, Wovenware
Carlos M. Meléndez is the COO and co-Founder of Wovenware, a Puerto Rico-based design-driven company that delivers customized AI and other digital transformation solutions that create measurable value for government and private business customers across the U.S.
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