Cloud Cost Optimization: Why finance leaders should care
Aimee Manning | SEP 25, 2023
With companies continuing to implement cost-cutting measures in response to macroeconomic conditions, cloud expenditure has become an area of increased focus. And it’s no surprise given that the average organization now spends upwards of $3.8 million on it – a figure that is set to rise further, with Gartner estimating that cloud computing will account for 51% of total IT spend by 2025.
But while some companies are taking steps to optimize their cloud spend – as evidenced by AWS’s declining revenue growth rate – there are still many that aren’t. Hashicorp, for example, found that 94% of companies are wasting money in the cloud, and our own data found that around a third of all cloud spending is unknowingly wasted.
So, why is it that businesses are draining so much money into a solution that was intended to provide greater cost control?
In short, because of the lack of visibility.
The problem is:
- 66% of companies report higher usage than planned
- 70% aren’t aware of the exact drivers of their cloud costs
- The actual amount that’s spent typically exceeds budgets by an average of 18%.
So, while cloud computing can be far more cost-effective than on-prem, the benefits can only be realized if the cloud infrastructure is optimized to reduce wastage and inefficiencies. Without total visibility into cloud usage, this simply isn’t possible.
With this in mind, here’s why cloud cost optimization matters and more importantly, the impact it can have on your organization’s finances.
Reasons to optimize your cloud costs
Being in control of both spend and usage is critical to driving down costs and ultimately eliminating wasted spend.
But what are the specific benefits of cloud cost optimization?
Substantial cost savings
With global end-user spending on public cloud services expected to increase 21.7% and reach a staggering $597.3 billion in 2023, it’s an area of spend that simply cannot be overlooked.
While the exact amount that cloud spend accounts for in any given business can vary widely depending on factors such as industry and business size – Gartner claims it’s around 14.2% of total IT spending on average, while Flexera reports 22% – for the vast majority, it’s a significant line item in their IT budget.
But what if it didn’t need to be as high as it is?
Well, chances are, it doesn’t.
As we’ve already mentioned, organizations waste an average of 32% of their cloud spend, which for many runs into the millions.
Here’s the thing though – to determine exactly what is contributing to this wastage, you need visibility of your cloud usage and a way to optimize your spending accordingly. Only then will you stand the chance of benefiting from cost-savings.
Avoid unexpected billing
Thanks to evolving business needs, seasonality and elasticity – in other words, the ability to quickly scale up or down as required – cloud usage patterns can be notoriously difficult to predict. And that’s before you consider the complexity of each cloud provider’s pricing model – AWS, for example, offers more than 200 services, each with its own pricing structure.
Unfortunately, these factors can make it incredibly difficult to accurately forecast cloud usage and plan for the associated costs, which can in turn put your business under huge financial strain. Especially given that these costs can easily run into the millions.
By optimizing these costs, however, you stand to ensure that your expenses are more predictable, allowing for better budgeting and planning.
What’s more, cloud cost optimization can also enable you to identify underutilized resources, and right-size instances – in other words, third-party server resources – based on your actual usage, helping you drive down costs and improve resource utilization.
Prevent unnecessary spending
We’ve already touched on the fact that 32% of cloud spend goes entirely to waste, but when you consider that this can easily equate to millions of dollars being spent unnecessarily, the impact on your bottom line simply cannot be ignored.
The question is, how exactly can cloud cost optimization prevent this level of wasted spend?
While there are a number of ways this can be achieved, some of the core approaches include:
- Identifying underutilized resources
By analyzing cloud usage data, a cloud cost optimization platform, such as Vertice, can identify instances or services that are underutilized or overprovisioned, and either recommend that you scale down or terminate the resource entirely. This will ultimately prevent you from paying for resources that are not being used effectively, whether that be storage, compute power or memory, for example.
- Advising on reserved instances
Cloud providers such as AWS offer reserved instances that allow organizations to commit to using a specific amount of compute capacity over a fixed term, in exchange for a discount. While this can be an effective way to reduce expenditure, businesses need to be strategic about which instances they reserve – reserving too many or reserving the wrong type of instance can lead to unnecessary spending. A cloud cost optimization tool can help prevent this by making informed recommendations or making commitments on your behalf.
- Advising on when to schedule resource shutdowns
A cloud cost optimization tool can identify the days or hours of low demand and make recommendations on when to shut down resources to optimize cost efficiency.
- Optimizing storage
It’s also possible to make considerable cost savings not only by picking the right storage products and configurations, but also by tailoring how accessible that data is. As an example, if you choose a storage product with a higher latency, or a longer time to retrieve data from it, you will pay less.
Many organizations put everything into an immediate access product, irrespective of whether it is used daily or yearly. With Vertice, you can configure and/or automate where your data is stored based on your access patterns, meaning that rarely used data can be moved to cheaper tiers whilst frequently accessed data remains immediately available.
- Optimizing network and content delivery
Depending on where your data is stored and the services that consume it, you may find yourself faced with increased cross region data transfer costs. Fortunately, this can be optimized either by using additional or alternative networking products, or by relocating services to minimize the most expensive data transfer types.
Cloud optimization enables businesses to improve the performance of their cloud infrastructure by allocating resources more efficiently.
One of the core benefits of cloud computing is the ability to scale resources up or down as required in order to meet changing demands. But this flexibility can come at a cost. If resources aren’t allocated efficiently, it can result in poor performance and slow response times, which can negatively impact user experience and productivity.
Through cloud cost optimization, businesses can ensure that resources are allocated in an optimal way that maximizes performance while minimizing costs. As an example, a business could use automated scaling policies to dynamically adjust resource allocation based on usage patterns and demand, which can help to ensure that resources are available when needed, while avoiding overprovisioning.
How Vertice Cloud Cost Optimization can deliver maximum time and cost savings
For many organizations, there are substantial opportunities to drive down cloud costs. But it’s only possible with the right insights.
At Vertice, we provide you with these insights. More specifically, we analyze your cloud infrastructure using our proprietary suite of more than 75 optimization tests, covering areas such as resource specification, commitment allocation and performance efficiency, and use the results to generate a number of cost saving recommendations that can either be automated or require minimal engineering support.
Recommendations that could enable you to save up to 25% on your annual cloud spend.
That’s not the only benefit of using Cloud Cost Optimization though.
By actively monitoring your cloud infrastructure, we will alert you to anomalous increases in spending, while re-running the optimization score periodically for ongoing savings.
See for yourself how Vertice discovered over $1 million in cloud savings potential for one company, or alternatively learn more about our platform here.