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Application modernization efforts that support the aggressive rollout of digital strategies have paved the way for accelerated cloud adoption. This has resulted in enterprises spending a higher percentage of their IT budgets in the cloud. To scale the cost of doing business in the cloud effectively, enterprises need to understand the underlying reasons their costs are increasing.
A study by Andreessen Horowitz found enterprises are typically spending 20% more on public-cloud infrastructure than expected. The unpredictability of enterprise cloud spend is driven by three key factors: more applications being delivered with multi-cloud, increased charges from cloud service providers (CSP) for pay-as-you-consume services, and cloud waste.
The last three years have seen a tremendous rise in the use of cloud computing as companies have more fully embraced this technology to address the challenges of the global pandemic, including distributed workforces and the ever-expanding digital footprints needed to deliver better employee and customer experiences. The State of Multi-Cloud Infrastructure Report and Application eXperience Infrastructure Study (AXIS) found that spending on cloud accounted for 31% of overall IT budgets in the US last year. Similarly, International Data Corporation (IDC) showed that spending on cloud infrastructure increased 13.5% year over year in the fourth quarter of 2021 to $21.1 billion, marking the second consecutive quarter of year-over-year growth.
IDC further predicted that by the end of 2022, cloud spending will outpace non-cloud IT infrastructure spending for the first time. As enterprises have shifted from short-term requirements focused on connectivity to digital strategies for long-term growth, there is an increasing focus on application modernization and increasing lift and shift strategies backended by the cloud. In fact, the AXIS study revealed that nearly half of enterprises anticipate more than 75% of their applications will be in the cloud within 12 months.
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Cloud costs rising due to global economic crisis
In March, Google Cloud announced significant price increases across a number of core services under the guise of wanting to provide “more flexible pricing models and options.” However, all cloud service providers (CSPs) have increased prices to varying degrees. This can be attributed to the chip shortages that gained national headlines last year as well as the rising cost of goods due to supply chain issues and inflation that we’re all experiencing now. The war in Ukraine has only exacerbated the problem as Ukraine produces 70% of the world’s supply of neon gas used in semiconductor lithography.
Hidden egress costs: a key challenge
Another key challenge of managing cloud costs for enterprises are hidden egress costs. While most cloud providers don’t typically charge to transfer data into the cloud (“ingress”), they do charge for data egress in most situations. Data egress occurs whenever your applications write data out to your network or whenever you repatriate data back to your on-premises environment. In a recent conversation I had with a prominent industry analyst, he noted that he is receiving more and more calls from clients about cloud egress. Just how high are these costs?
Let’s look at the National Aeronautics and Space Administration (NASA), which generates an incredible amount of data every year. An internal audit expects data collection to increase eight-fold by 2026 and expand to 247 petabytes. The audit concludes that fees from moving data from the cloud present “potential risks that scientific data may be less available” and warns that NASA may need to impose limits on the amount of data egress to control costs. Surprise data egress fees from multiple cloud providers can prevent enterprises from using the best cloud provider or, like NASA, from imposing data limits in an effort to reduce billing complexity. However, a single-cloud strategy can entail other risks, like vendor lock-in and missed innovation opportunities.
Eliminate unnecessary cloud spend
Another area that often creates challenges for enterprises comes from cloud shadows — the adoption of SaaS, IaaS and PaaS without IT’s knowledge. Similar to subscriptions in our personal life — streaming services, budgeting tools, gym memberships etc. — only when you see the bill do you realize you are paying for services you no longer use. The same holds true in business. Large enterprises have different teams using the cloud to build and test applications and put them into production. But who is watching to ensure these cloud environments get turned off when they are no longer in use after a test, or when an application becomes dormant because it is no longer needed or gets replaced?
While some enterprises have standardized on one cloud service provider, it’s increasingly common that enterprises are embracing multi-cloud. In fact, a study by Flexera found that 92% of enterprises have done so to boost innovation and improve customer experience. However, different teams choose different CSPs based on personal preference or familiarity, and because they offer different features and are available in different cloud regions. This adds another layer of difficulty for enterprises as they work to track costs and budget accordingly.
End-to-end visibility of cloud environment with ML critical to cost management
While managing cloud costs may seem daunting, the solution is actually well within the reach of all organizations. The key is to develop a strategy and deploy tools that offer real-time, end-to-end visibility across your entire cloud environment with ML-delivered insights, recommendations and automation.
Tools that provide end-to-end visibility enable enterprises to identify cloud egress costs, see which applications are underutilized or dormant and turn off cloud region instances that aren’t in use. Greater visibility is key to successfully migrating to the cloud and managing the enterprise cloud footprint. It allows enterprises to easily identify where it makes sense to spend more if performance improves and can provide greater ROI. For example: let’s say you open a new office in Australia. Turning on a cloud region close to the new office could deliver 50% better performance at a cost of $1,000 per month. This approach leads to better understanding of cloud usage and pattern matching, giving enterprises the ability to better manage cloud costs and predict future cloud spend.
As more C-suites are asking how each department’s spend contributes to the success of the business, enterprises should seek cloud-agnostic vendors with tools that give them complete visibility into cloud cost and spend. Having a better understanding of the cloud environment only helps lines of business and IT leaders show how the cloud contributes to growth.
Mehul Patel is Head of Marketing and Customer Insights and Intelligence at Prosimo.
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