Leading Cloud Providers Drive Up Cloud Costs as Adoption Soars

By Kristian Tuinzing

Director of Client Services, NPI

December 02, 2021

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It’s impossible to ignore the seemingly ubiquitous nature of the cloud and the services it now renders to businesses of all sizes all over the globe. But the scale of adoption within these businesses varies greatly (along with cloud costs) – especially when it comes to the enterprise sector.

In 2021, we’ve seen a wave of acceleration in large-scale enterprise cloud adoptions. Headlines bear this out. There’s Wells Fargo’s move to a multi-cloud setup and Amazon’s recent deal to host sensitive UK spy agency data, among many more in healthcare and other industries. These deals look to be moving cloud adoption rates out of a bit of a stalemate where certain kinds of data were deemed too sensitive to be hosted in the cloud (much less in the cloud owned by a foreign company!). Now, we appear to be at a tipping point as remaining holdouts signal they’re ready to utilize cloud solutions as an accepted standard.

This recent acceleration is also driving an increase in cloud costs as providers like Amazon, Google, Microsoft and others increase pricing for new and existing customers. The reason is obvious – there is leverage in knowing your solution is now an indispensable part of the modern enterprise IT strategy. Because of this, NPI recommends keeping an eye on a few crucial areas.

Consider Multi-Cloud Setups for Sustained Competition (and Lower Cloud Costs)

A major drawback of larger cloud migrations is they can effectively hand a single vendor the “keys to the kingdom” and give them control of pricing. However, a key takeaway of some of the big cloud announcements made over the last year is that many customers are including at least 2 or more key providers. This creates a natural sense of competition and cloud cost control. It’s important to weigh how pricing from each stacks up against the wider market. If one vendor offers better than average market pricing, the customer can move more business to that vendor as a means to put pressure on other providers.

Different cloud providers can also have varied pricing when it comes to added layers of security, private instances, and positive synergies that can benefit licensing held in other spends with the same vendor outside the cloud platform space. Tying Microsoft EAs or Google Workspace (FKA GSuite) deals in with agreements for the respective vendors’ cloud platforms can help companies not only reduce cloud costs but achieve better pricing and deal outcomes for other solutions delivered within the vendor’s footprint.

Evenly Weigh Costs of Cloud versus On-Premise…

In larger enterprises, moving to the cloud often comes down to a single factor: the increasing cost of maintaining on-premise environments. This is especially true right now as companies may need major hardware refreshes to keep pace with expanding needs (just as hardware costs are on the rise).

One aspect also often overlooked in initial planning is the pricing for any connectors that may be needed to other services (cloud-native or otherwise). This has the potential to materially drive up cloud platform costs. Connections to different services provided by other vendors is becoming one of the main differentiator points across the major cloud platforms.

It’s important to have a clear read on this area of additional cloud cost in the planning phase, and to perform price benchmark analysis to avoid future risks that can be compounded with pricing that’s above fair market value. Once locked in, it can be difficult to change.

…While Avoiding Overcommitments

Many of the leading cloud providers tie their agreements to long-term commitments, usually with a 3- to 5-year term. NPI recommends pushing for shorter term length options of 1- and 2-years as well. This will help to achieve greater transparency into pricing as well as serve as a way of balancing a slower approach that avoids overcommitments up front.

Tiered pricing is another overcommitment pitfall as vendors seek ways to generate more revenue per client. In a lot of cases, underutilized capacity doesn’t rollover into subsequent terms. In fact, NPI finds that overcommitments are just as big of a cloud overspending culprit (or bigger) as uncompetitive base rates.

As enterprise cloud adoption reaches new highs, it’s important to identify areas and trends where overspending occurs – as well as tactics that can deliver cloud cost reductions. If you want to better understand how you can reduce cloud costs across your enterprise IT ecosystem, let us know.

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