As more organizations continue to embrace cloud computing, much has been written about the concept of cloud cost management and cloud cost optimization. The bulk of these insights focus on best practices around workload planning, clarifying specific IaaS/PaaS technical and use requirements, and maximizing cloud usage and efficiency in the context of those requirements. While this is fundamental to cloud cost management, the work doesn’t stop there.
Meanwhile, it’s important to acknowledge that cloud spending is hard to control – and even more so at enterprise scale. In Flexera’s State of Tech Spend Report, only 14% of survey respondents reported having mature cloud cost management processes. This provides validation to Gartner’s estimation that nearly 30% of all cloud spend is toxic waste.
Getting rid of cloud toxic spend requires more than strong workload planning and optimization. Companies need to implement end-to-end cloud cost management practices and tactics – some of which are commonly overlooked.
What is Cloud Cost Management?
Cloud cost management encompasses a wide range of activities that enable an organization to understand, manage and optimize cloud usage and efficiency. This includes clearly specifying and validating Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) requirements. This requires visibility into current- and future-state computing needs of the business within the context of productivity, communication, collaboration, scalability, and other important factors.
Cloud cost management also includes several pre- and post-workload planning and migration activities. These tend to happen during the purchasing and contract negotiation process as well as part of the contract management process.
Why is Cloud Cost Management Important?
All of this is critically important because the cloud (and customers’ computing requirements) is highly malleable. The technology itself can be easily and swiftly configured depending on the unique needs of the business. Because of that, it’s very easy for even a modest cloud project to start experiencing unnecessary scope creep – driving costs sky-high along with it. Governance is critical – from the point of defining requirements to processes that ensure companies aren’t paying for stranded computing resources that are no longer needed.
To prevent that from happening, IT and procurement leaders need to think about things beyond workload planning. As mentioned earlier, cloud cost management and optimization processes are still immature for the vast majority of companies. Nearly 40% of respondents in Flexera’s report claimed it was challenging to avoid cloud cost waste.
What Cloud Cost Management Tactics Are You Missing?
Here are some often overlooked tactics to incorporate:
Pricing and discount optimization. Providers like Amazon Web Service (AWS) and Google have led many customers to believe their pricing is fully transparent – “what you see is what you get,” so to speak. During the early days of both services, you could make the argument that it was, but those days are over. In general, cloud discounts have become more negotiable, especially for customers with large annual spend. This can make it hard for customers to determine if they’re paying a best-in-class price.
Vendor flexibility at the negotiation table is also changing rapidly as companies reconcile changes in business strategy with investor and shareholder expectations. At NPI, we always advise our enterprise clients to benchmark pricing, discounts, and terms and bring vendor-specific, data-backed negotiation intelligence to every deal. This is foundational to cloud cost optimization and the elimination of long-term overspending.
Consider multi-cloud setups. Leading cloud providers are increasing the cost of moving to the cloud. Some of this is the natural trajectory of market pricing, but a lot of it is cloud providers’ attempt to seize pricing leverage as their services become more indispensable. To create credible competition (and therefore better pricing), many enterprises are using at least two or more providers to handle their cloud computing requirements.
For companies that utilize the cloud services of their legacy enterprise IT vendors (think Microsoft, Google, Oracle, etc.), the benefits of a multi-cloud setup can spill over into non-cloud IT cost management. Different cloud providers can also have varied pricing. For example, tying your Microsoft EA renewal to a large-scale Azure purchase can help you not only negotiate a better deal for Azure but achieve better pricing and deal outcomes for other solutions delivered within the vendor’s footprint.
Choose contract duration carefully. Another aspect of cloud cost management that many often miss has to do with contract duration. Cloud providers, especially the ones that come from legacy enterprise IT backgrounds like Microsoft and Oracle, often push their clients into multi-year terms. This can certainly have short-term cost advantages, but it could also impede flexibility moving forward. If you’re going to sign a contract for multiple years, make sure that you’re still getting the flexibility you need to scale your services as the demands of your industry and market evolve around you.
Stay on top of changing SLAs. Be on the lookout for any changes to your cloud provider’s Service Level Agreements (SLA). Remember, terms can change at any time with little or no customer notification. Proactively monitor SLA terms and demand clarity around any changes so you understand how they will affect your business and costs.
Establish visibility into usage. Finally, don’t forget that you should have as much visibility into your actual cloud usage as possible. Cloud providers profit from customers who renew on autopilot rather than inspect what they’re paying for and periodically validate exactly which resources are being used and which are not (stranded, toxic spend). No vendor is ever going to complain if you are over-subscribed and don’t realize it. In an effort to avoid paying too much for services you aren’t actually fully utilizing, you have to regularly and thoroughly audit cloud usage for optimization opportunities.
If you’d like to find out more about how you can improve cloud cost management, contact the team at NPI today.