The Seismic Shift in IT Infrastructure Finances: Part One
Cloud computing continues to grow at a breakneck pace, yet organizations are increasingly concerned with managing cloud costs. This article is the first in a two part series that will take a look at this phenomenon and explain why it is happening.
Cloud computing forever changed the way organizations leverage compute and storage to improve their businesses. The availability and speed new resources are provisioned have reduced procurement times from months to seconds coupled with the democratization of the provisioning process has greatly increased the growth and consumption of cloud resources. Simply put, it has become far more efficient to leverage compute and storage resources. This is similar to what happened during the Industrial Revolution. During the 19th century, the invention of the steam engine greatly increased the efficiency when it came to consuming coal which then led to a massive uptick in coal consumption. There even is a fancy paradox, called Jevons Paradox, to describe this phenomenon. The proof is in the pudding and cloud spend continues to grow at a breakneck pace with Gartner projecting an 18% increase in spending in 2021.
The increased consumption is not without its challenges. By now, most of those who have spent time working on cloud infrastructure at large organizations have heard about or experienced an incident were the organization inadvertently spent money on resources. One of my personal favorites in my career was a rogue AWS CloudWatch LogGroup with tens of thousands of dollars in unnecessary log data. That little incident represents just a tiny piece of the estimated 21 billion dollars in cloud waste projected in 2021.
Much has been made about how to optimize cloud resources with technology, such as resource tagging or cost optimization SaaS tools, to decrease/manage spend in the cloud; however, unintended waste in the cloud merits a deeper look as to why it occurs in the first place. Cloud has forever changed IT from a technology perspective, but often overlooked is the aftershock that occurred from a financial perspective. I won’t dive into CapEx vs. OpEx in this article, but rather look at the pricing model itself.
Usage Based Billing
Cloud providers leverage a usage-based billing model which is one of the major arguments for migrating to the cloud as you “only pay for what you use”. Such a model does provide great benefits as it greatly increases the rate of innovation if you don’t have to wait for a business case to be done and a server rack to be shipped and setup in your data center to start a new initiative. It does; however, have downsides as well. Given the ease and speed of provisioning, we frequently see the creation of resources that are not necessary, over provisioned, or resources that are not turned off or deleted when they should be. These resources typically sit incurring costs until the bill rolls in at the end of the month and there are charges that were not anticipated resulting in shock and panic to the individual receiving the bill.
Billing Complexity
Cloud providers have been rolling out new features and services at a rapid pace with little signs of slowing down. This presents enormous opportunities for organizations to use these innovations to accelerate their business. With these additions, it also continues to grow and complicate the monthly bills. Given service interdependencies and the variety of charges that can be incurred per service, bills have become extremely complex for large organizations. When you come across articles titled “How can I see why I was charged for CloudWatch usage, and then how can I reduce future charges?” it definitely raises some concerns. The snippet below displays a tiny segment of a much larger and complicated bill.
Cloud computing has drastically changed how organizations manage IT costs from a financial perspective. The change in pricing model and increase in bill complexity coupled with the democratization of compute and storage has led to significant challenges in effectively managing cloud spend. Tune in next week for my next article which will discuss key factors that are required to effectively deal with this issue.
