Will moving to the cloud really save you money?

Cost savings were once a major selling point for public cloud. But today’s reality tells a different story
Two women in an office analyse a line chart

Last October, project management firm Basecamp lit a fire under public cloud. 

In a blog post which was widely shared across the tech community, CTO David Heinemeier Hansson explained that the series B firm was turning its back on the cloud, thanks in part to a bill reaching $3.2m (£2.6m) a year.

“The savings promised in reduced complexity never materialised. So we’re making our plans to leave,” he said, adding that the cloud typically excelled for those with low-level or unpredictable traffic, but not for a medium-sized business with “stable growth”.

Cloud dissatisfaction grew during Covid-19

Despite Basecamp’s troubles, the ability to save costs in the cloud was once a key selling point. With most contracts pay-as-you-go or subscription-based, the flexibility and scalability of cloud was meant to reduce the operating and administrative overheads of maintaining on-premises data centres, and the burden placed on operations teams.

However, amid the rush to digital services through the pandemic, newer models of cloud consumption, rising inflation and an incoming recession, the cloud cost success stories of yesterday are increasingly few and far between.

In its 2022 State of the Cloud Report, Flexera notes that organisations waste 32% of the money they spend on cloud infrastructure, while IDG’s Cloud Computing Study says cost control is a key barrier to migration, along with the cost of moving data into and between clouds. 

Common cost issues have included higher-than-expected usage, suboptimal design, runaway license costs and the additional expense of requiring data egress and disaster recovery services. The explosion of data has pushed storage prices up, with Basecamp spending almost $1m to archive 8 petabytes of data on AWS S3. Many SaaS services were also simply under-utilised through the Covid crisis. 

Why your cloud bill may keep climbing

For many business and technology leaders, saving money in the cloud was always something of a misnomer.

“Cloud costs and the lure of savings has been overstated, but most specifically due to how cloud applications and hosting is used,” says Roxane Heaton, CIO at Macmillan Cancer Support.

Mudassar Ulhaq, CIO at Waverton Investment Management, agrees. “When I presented to the board, the key objectives were business resiliency, increased capacity to grow, adapt to new technologies and introducing a flexible cost model,” he says, adding flexible working was another. 

It is the responsibility of the cloud vendors to make the billing simplified, transparent and less complex

Through carbon footprint savings, the cloud is now also inadvertently contributing to Waverton’s sustainability initiatives.

“The sustainable benefits weren’t part of my objectives, but the board now sees how carbon-footprint beneficial we are, and that’s a message that our clients want,” he says.

For the cloud hyperscalers, the volatile market means they must balance customer satisfaction with profitability.

In the past year alone, cloud service providers (CSPs) have been hit by rising energy bills, inflation and chip shortages in Taiwan, which accounts for two-thirds of the semiconductor market, as well as the war in Ukraine, which provides 70% of the world’s neon gas, a key chemical element used in semiconductor manufacturing. There’s the suggestion too that the cloud may have reached ‘economies of scale’, where the early market gains slow or even disappear.

AWS, Azure and GCP have all missed revenue targets in recent quarters, citing market slowdown. Microsoft will raise the price of all cloud services in Europe from 1 April, while GCP costs have increased for storage, operations and data transfers. Analysts at Canalys forecast public cloud prices will rise 30% in Europe this year, and some say this could lead to increased tension between suppliers and customers.

“It’s not that cloud providers are bad,” says Joe Weinman, long-time industry analyst and author of Cloudonomics: The Business Value of Cloud Computing, who calls the relationship with suppliers a “fair value exchange”. 

“It’s the nature of capitalism, competitive markets and autonomous entities that have their own mission objectives, shareholders and financial objectives.”

CSPs focus on optimisation, FinOps and budgeting

CSPs are looking to cost optimisation to help their customers, including better monitoring of accounts, reviewing the metrics which relate to cost, moving to cloud-native environments and making better decisions through the availability of real-time data. 

There’s renewed vigour around right-sizing workloads – the process of maintaining a sufficient level of service at the lowest possible cost, shutting down unused instances and moving to more affordable packages, such as lower-tier storage or significantly cheaper spot and reservation instances. Cloud-cost-management tools offer recommendations of where organisations can cut costs.

It’s not that cloud providers are bad. It’s the nature of capitalism and competitive markets

FinOps, the operational framework designed to bring technology, finance and business together on financial accountability, is in vogue too, with some consultancies claiming it can help save up to 20%-30% off cloud bills.

Giving the example of developers considering cost during code design, Archana Venkatraman, research director, CloudOPs, at IDC, says FinOps makes cost control “everyone’s responsibility”.

“FinOps is something you think of proactively, even before cloud migration, so the concept is embedded in the design stage,” she says.

Yet critics argue that CSPs should also do more to help with budgeting, not least given the complexity of cloud bills and as pay-per-use procurement models rarely align with traditional budgeting mechanisms. 

“It is the responsibility of the cloud vendors to make the billing simplified, transparent and less complex,” says Venkatraman. “And empower the users with tools where they can see how their use changes.”

“By introducing a mechanism of review with your customer, you’re able to set budgets and identify unutilised resources that you may not be using,” further suggests Ulhaq. 

How can organisations cut cloud costs?

Cloud cost control starts with identifying cloud’s value within the business, due diligence, designing cloud environments to suit usage and working collaboratively with suppliers and resellers from brief through to billing. IT departments should be on top of capacity planning and policy management, and conduct regular cost reviews, where CSPs can provide greater transparency, control and support.

There must also be clarity around the technology leader’s role.

“Should they be focused on worrying about what the right orchestration tool is?” asks Weinman. “Or should they be focused on the customer value proposition and competitive differentiation of your products and services?”

Risk mitigation is crucial, and many technology executives have developed cloud cost management and cloud exit strategies. Heaton says leaders should be ready to pivot to alternative operating models.

She concludes: “We need to stay close to alternatives, to different ways of delivering the same impact and building ever smarter to both diverge, and consolidate as needed.”