In the ‘race to the cloud’, many organizations are not realizing the promised cost benefits of moving to their infrastructure to the cloud. In fact, many are finding that they are spending far more than they anticipated. While Organizations should save 15% or more by moving to the cloud infrastructure, a 2020 report[1] shows that realizing these savings is not straightforward:
- 80% of organizations will overshoot their cloud infrastructure as a service (IaaS) budgets, due to a lack of cost optimization approaches.
- 45% of organizations that perform lift-and-shift to cloud Infrastructure, without optimization analysis, will overprovision up to 55% and will overspend up to 70% during the first 18 months[2].
While the adoption of cloud infrastructure offers undeniable scaling and agility benefits, a rigorous cost governance is required to keep spend under control. The world of traditional on-premises IT has become reasonably accurate at forecasting static operating costs, by running IT applications in a familiar way for a long time. When adopting cloud, it is imperative to reevaluate how you think about cost management, particularly the dynamics of consumption-based services.
No matter where you are in your cloud journey, cloud cost optimization should be a top-rated concern: the ability to provision instances and use cloud services in real time requires a continuous optimization process to avoid an out of control spiral of ‘unexpected’ costs.
Key practices for sound cloud cost control:
1. Ensure cloud migration align to clear business outcomes and KPIs.
Cloud migrations without clear and measurable business objectives often fall short on economic value, leading to cost overruns.
2. Consider lift-and-shift initiatives carefully.
Most on-premise workloads are over-provisioned on capacity by approximately 50%. NET(net) recommends leveraging cloud-native services and optimization initiatives to closely align capacity to workload and achieve your desired efficiencies. Key actionable areas to focus on:
- Identify the sizes of instances needed for each application workload.
- If the workload is being moved from an on-premise data center to the cloud, the estate should be optimized when it is moved, using recommendations on the optimal instances to buy. ‘Like for Like’ is always more expensive in the cloud and likely sized larger than it needs to be.
- Understand your remaining on-premise capacity if you operate in a Hybrid environment. Consider which workloads to run where and bring workloads back from the cloud if on premise capacity allows it or nature of the workload would be more cost effective to run on-premise.
3. Applications or Services in the Cloud should also be continually ‘Right-Sized’
- Identify where the instance needs to run (location) and optimize for cost/performance. This requires highly granular data capture of the existing resources used (CPU, memory, disk I/O & network I/O), because using averages won’t work for peak demand.
- Identify the best way to buy the instance and take advantage of lower cost, prepaid instances for known usage. Most service providers offer significant discounts for prepaid or reserved instances, sometimes up to 75 percent when compared to the costs of on-demand instances. This option provides considerable savings, if capacity is known, stable and can be accurately predicted. While the unit costs or reserved instances are lower, the nature of the workload needs to be relatively constant at the reserved capacity in order for reserved instances to be the least cost method.
4. Continually analyze the billing engines of the cloud providers to identify and adjust optimal capacity usage.
While these are complex steps to implement and manage, NET(net) stands ready to assist with our Cloud Cost Optimization program. Our methodology offers four distinct points of differentiation that ensure usage is optimized:
- A proprietary technology enabled process to not only analyze, but optimize and predict cloud costs with high level of granularity and confidence
- Having analyzed thousands of workloads in different environment and industry verticals, there is an 85% probability that we can realize 25%+ in savings
- Reporting that shows precisely what consumption is vs what is being paid for
- Analysis available as one-time or ongoing managed service
In summary, many of the traditional ways of planning, managing, and scaling on-premise infrastructure simply don’t apply to Cloud. When these non-consumption-based methodologies are applied to Cloud, there is a virtual certainty that substantial sub-optimization will occur. The best case scenario is that companies don’t save nearly as much as initially planned. The worse case scenario is they spend far more than they ever did for on-premise. With the governance and cost optimization provided by Cloud Cost Optimization program in place, these dire results can be mitigated and realized savings maximized.
[1] Gartner: ‘How to Manage and Optimize Costs of Public Cloud IaaS and PaaS’ Gardner, March 2020, G00465208
[2] Top Ten Moves to Lower Your AWS Costs,” Gartner, April 2017, G00326261
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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