Steven Zolman

Jan. 24,2022 | Software, SaaS, Cloud, Snowflake

The Rise of the Consumption-Based Pricing Model

One thing is clear in 2022: The technology industry is moving away from per user per month subscription models and moving towards consumption-based pricing models, and it’s no wonder why. With the ability to capture value from all customer consumption, the revenue-capture and resulting earnings of firms like Snowflake have significantly outpaced even the most successful subscription-based companies, and this is pushing enterprise valuations into a completely new stratosphere, providing ample incentive for technology suppliers to migrate towards consumption-based pricing models.

Executives like what they hear; pay for only what you use -- no shelfware. If consumption costs are less overall than subscription access costs, it seems like an easy win, and for the most part, it seems like they are -- to start. What clients are finding out quite quickly, however, is that their consumption is expanding in a non-linear way to the value, and is quickly outpacing subscription costs that would otherwise be tied to user counts. One reason for this is that the industry is storing more and more data, and has been experiencing an increasing need to ingest real-time data from diverse sources in a variety of formats, to structure that data properly in order to run deep analytics (often by using machine-learning applications), and to generate insightful interpretations and actionable intelligence from that data so business can keep pace with its rapidly changing reality. This has stress-tested the notion of consumption models, so while the suppliers love it, that spells bad news for clients who now need to develop new capabilities to manage costs.

In March 2021, Snowflake was named as our #7 Technology Supplier to Watch, and that was a good call then, as their market influence has only increased since that time and is expected to continue to do so for the foreseeable future. Snowflake is a cloud-based data warehouse, analysis, and reporting tool that is one of the leaders in this market and has enjoyed significant market up-take over recent years, but is also a solution that can become extremely expensive if you aren’t extremely deliberate in how you plan for and deploy this technology, and highly disciplined in how you consume it.  

Snowflake Pricing

Snowflake is priced based on the edition and the number of credits.

Credits are priced per hour based upon the edition:

• Standard ($2)
• Premier ($2.25)
• Enterprise ($3)
• Business Critical ($4)

 Instances consume credits based on the instance size which ranges from X-Small to 4X-Large.

This makes the range of hourly costs of Snowflake anywhere from $2 - $512 per hour (a 25,600% difference between the most expensive and the least expensive ways).

Note that Snowflake offers enterprise plans for its cloud data platform (for a minimum 1-year duration) with a discount function of your credit consumed per hour tier so understanding your requirements and anticipated use is not only critical to ensure you don’t significantly overpay, it's also important to maximize your discount benefit.

How to SAVE:

When you fully understand that the Data Warehouse pricing model of Snowflake charges you for the holy trinity of consumption of:

• Compute
• Data Storage
• Cloud Services

You realize that managing your consumption also manages your costs.

Here are some of the easiest ways to (proactively) save:

1. Turn it off

•       Business Hours x Business Days is only 17% of 7x24x365

2. Use 'warehouse monitoring' to:

•       size and limit the cost per workload to predefined limits
•       cut off DWs when you hit predefined budget amount limits

3. Use 'control parameters' to:

•       set timeout limits
•       set maximum thresholds for concurrency

4. Optimize Data Loads

•       Presort your ingestion data
•       Compress file formats for faster loading
•       Use the most efficient bulk loading methods  

5. Author efficient scripts

•       delete temporary resources
•       don’t process duplicate data
•       standardize on the best SQL code
•       avoid resource-intensive commands

6. Manage your Storage Carefully

•       limit file sizes
•       define a meaningful HSM policy
•       use storage in the same region as compute

Supplier Financial Management (SFM) for Snowflake:

To further your savings efforts, you will want to develop processes and views to evaluate account usage so you can track the history, performance, and costs of the various workloads, which will enable you to intelligently respond to the bills for your consumption by evaluating your usage data to determine which workflows are the most expensive, giving you a priority list of secondary inspection efforts. It is often helpful to create roles by business functions and/or applications so that you can track costs to various departments to help business leaders determine if the cost to value is appropriate. Remediation efforts will require collaboration between line of business leaders, application owners, DevOps, and FinOps, so another good counter-measure would be to develop a cross-functional team empowered with this focus, so you’re not blindsided and find yourself in a completely reactionary mode after you have been surprised with runaway costs that were never anticipated.  

Cloud Cost Optimization (CCO):

Increasingly, suppliers like Snowflake are moving costs out of the access layer and into the consumption layer, and this trend will continue in 2022 and beyond, adding pressure to client cost containment efforts, and increasingly developing the nascent industry of cloud cost optimization. As such, client maturity on how it manages cloud consumption costs will be a key differentiator in the years to come, and it will be critical for clients to align themselves with the right partners. As we have seen with this example, even the challenge of sizing a Snowflake environment has a 25,600% variation in costs before you even get started, so when all other considerations are factored in, there is an almost limitless need for intelligent inspection and ongoing technical and financial management.

NET(net) Can Help:

This is an area where we excel. Snowflake’s fiscal year-end this January, so it’s the perfect time to act. Contact us to see how we can help you save 32-60% on all your Cloud and SaaS investments including those with Snowflake.

About NET(net)

Founded in 2002, NET(net) is the world’s leading IT Investment Optimization firm, helping clients find, get and keep more economic and strategic value. With over 2,500 clients around the world in nearly all industries and geographies, and with the experience of over 25,000 field engagements with over 250 technology suppliers in XaaS, Cloud, Hardware, Software, Services, Healthcare, Outsourcing, Infrastructure, Telecommunications, and other areas of IT spend, resulting in incremental client captured value in excess of $250 billion since 2002. NET(net) has the expertise you need, the experience you want, and the performance you demand. Contact us today at info@netnetweb.com, visit us online at www.netnetweb.com, or call us at +1-866-2-NET-net to see if we can help you capture more value in your IT investments, agreements, and relationships.

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