THE CLOUD COMPUTING TRAP:

How Hidden Costs Evaporate the Bottom Line

January 2022

INTRODUCTION

Each year, companies worldwide waste millions of dollars on inefficient use of Amazon Web Services (AWS) – as much as 35 percent of total cloud spend. It’s not hard to imagine how this happens. A front-line engineer needs a virtual machine (VM) for a project and, figuring that it only costs a few cents an hour, makes sure he has extra power in case he needs it. Worse, he forgot to shut down the previous VM he was using, which continues to accrue costs. These seemingly minor expenses add up quickly over time, and they become a major problem when multiplied by all the engineers and projects for an entire department. It should come as no surprise when a finance leader scans the P&L and stops cold at the AWS line item; it jumped 25 percent in a month, and now it’s heading even higher.

When business leaders are asked about those technologies, it’s easy to see why IDC’s analysts have such a bullish outlook for the market. Some 58 percent of the CFOs who participated in a 2019 EY survey said they need to “build their understanding of digital (cloud and SaaS), smart technologies and sophisticated data analytics.” This is still the case today and that wasn’t just high-tech or tech-savvy companies; nearly two-thirds of responding CFOs from automotive, transportation and industrial products companies said the same.

With 45 percent share, AWS dominates the Infrastructure-as-a-Service market, one of the fastest growing cloud segments. But despite its established presence in the market — and despite all the AWS tools and services provided by Amazon and third parties alike — companies continue to have little understanding of what their AWS dollar buys. Development teams are not tasked with monitoring instances that go underutilized. There’s little incentive to streamline those resources, and even less awareness of outside services that can help manage AWS efforts.

A fundamental disconnect between engineering and finance underlies these problems. Usage can cost mere pennies per hour, so engineers typically have authority to launch an instance without formal financial approval. And when they do reach that threshold — for example, when an e-commerce company expects an influx of traffic on the site during a peak shopping season — the tendency to overestimate what’s needed to keep the site stable overrides any concern about wasted server capacity.

CULTURE CLASH

Finance and IT teams typically approach their work from different mindsets, each side driven by a divergent set of incentives.

Engineers’ rewards derive from performance, and they’re motivated by a chance to work on big problems — to make an impact on users’ lives and the world at large. The work of cost reduction is often uninspiring to them. Meanwhile, finance teams know that the grandest of projects won’t make a difference if the work isn’t financially sustainable. These are not mutually exclusive goals, yet too often the focus on each leaves blind spots in between — spaces that begin to accumulate waste.

When the two sides come together to strike a balance between cost and service delivery, alignment is seldom reached. Engineers point to the system’s features and performance, while cost managers look at the elegant black box and wonder why it requires so many resources. To optimize AWS usage, businesses need a way to marry technical expertise with financial acumen.

DIFFERENT COMPANIES, DIFFERENT DEMANDS

This scenario plays out across a wide spectrum of businesses, but how it evolves depends on a firm’s digital history. Most younger firms and startups that are “raised in the cloud” build AWS into their development operations from Day One. For these businesses, the problem of spiraling AWS costs tends to emerge when they hit a growth spurt. It might come after a Series B or C round, which they use to launch an expansion. They now have the cash to expand their infrastructure, but they also have a board asking about cost controls.

Legacy companies transitioning their owned infrastructure into a public or hybrid cloud face similar challenges; they accrue significant waste by virtue of shifting to new platforms. Their IT ecosystem is optimized for a data center model, not an hourly fee model, and they often lack the expertise required to efficiently manage that change.

No matter which of these scenarios a company finds itself in, it’s not hard to see how easily costs can slip out of control — and how important it is to rein them back in.

THE FIELD OF RESPONSES

The range of pain points generated by the spread of cloud computing has spawned a similar range of solutions, some more effective than others. AWS provides a list of optimization services that are somewhat ancillary to its broader service provisions. After all, AWS focuses primarily on feature development in its web services offerings, not cost optimization for its customers.

Companies including Cloudability, CloudHealth, CloudCheckr, and Cloudyn offer automated solutions to report on performance. While this information can be useful, the tools require significant time to manage, derive insights, and execute plans.

Finally, managed-service providers offer consultations but often lack cost optimization expertise. Few focus solely on AWS cost optimization, limiting their effectiveness in uncovering hidden opportunities for significant cost reduction.

THE SPECIALIST APPROACH

Only managed-service providers who focus specifically on AWS cost optimization can deploy the depth of expertise necessary to evaluate a company’s complex AWS usage and provide cost-performance insight. This approach can save customers as much as 35 percent on their AWS bill within 30 days and establish long-term strategies for maintaining financial discipline.

Civitas Learning, which develops software for higher education institutions, experienced rising AWS costs and sought the help of Exstratus, an AWS managed-services specialist focusing on cost optimization. Within one month, Civitas cut its AWS bill by 10% and saved over $1.5 million within a year by addressing inefficiencies and instilling a cost-management culture across departments.

SUMMARY

While spending on cloud computing, including Amazon Web Services, will continue to soar, companies don’t need to resign themselves to spiraling costs. By combining deep financial and technical expertise with AWS cost optimization strategies, businesses can bring spending under control while freeing resources for revenue-generating activities.

QUESTIONS TO ASK

  1. How much does each of your engineers spend on testing and development infrastructure?
  2. What’s our cost per customer-month or visitor-month? Our cost per launched product per month?
  3. What’s our overall server utilization rate?