Cloud Spend Report: 2024

Cloud spend is the number one cost-cutting priority for financial leaders in the coming 12 months

Anyone working in technology markets will know that 2024 holds limited promise. An unexpected consequence of the pandemic was that the broader SaaS landscape, from startups to the enterprise, experienced a prolonged period of growth.

As normality returned, reality did too. An end to unsustainably rapid growth in tech has led to a downturn in investor confidence – not just for public companies but also in VC and PE segments. This subdued outlook forced many organizations to take a more cautious approach to their growth strategies, seeking ways to stabilize share price, increase margins and extend runways.

This more conservative mindset has resulted in much leaner business operations. In the seven quarters following the start of 2022, more than 2,300 different tech companies laid off a cumulative total of 400,000 tech workers in a bid to manage costs. 2023 saw even more severe cuts than 2022, with no major market recovery in sight and sources of capital becoming more expensive and harder to secure. Other overheads, such as rent, have also taken a hit. Office vacancies in tech hubs like San Francisco have risen from just 5% in 2020 to almost a third by the middle of 2023, a reflection of the large volume of companies downsizing, downgrading or abandoning physical office space altogether.

As finance leaders look to their 2024 forecasts, the options for further cuts become a bigger challenge. Efficiency measures remain a priority, but figuring out where to make them is more opaque than in previous years. One option is SaaS. Software can cost businesses between 5% and 15% of their total spend, with the shift to hybrid work accelerating this. A growing number of organizations are adopting more sophisticated approaches to managing SaaS spend, which has historically been operated in a wild west fashion in some countries.

Another is cloud, or more specifically: IaaS. Cloud computing, storage and other mass scale services such as those provided by AWS (Amazon), Azure (Microsoft) and GCP (Google) have enabled tremendous growth and a long list of benefits to companies in all sectors. Yet they have also brought with them a large bill that seems to get bigger every year.

The market hit $100bn in revenue for the first time in 2022 according to research from Gartner, in part due to growing usage but also amplified by the 23% price increase in on-demand computing capacity from AWS and other pricing changes from vendors.

To better understand the trends, challenges and opportunities facing the modern CFO in cost-cutting, and more specifically the cloud, Vertice commissioned a research study that surveyed 600 finance and technology leaders across the US and UK, which was undertaken in August 2023.

A key finding was that executives see cutting (or curtailing) cloud costs as the number one priority in terms of efficiency plans, followed by employees, SaaS, office space and adopting AI. Despite stealing countless headlines in recent months, embracing AI to save meaningful amounts of money remains a low priority for most finance leaders.

Yet how do CFOs begin to tackle that huge cloud number on their annual expense line? What else do they need to consider, and how are other companies approaching this problem?

Cloud costs are high and seem to be getting higher. Spending with cloud providers like AWS, Azure and GCP can range from anywhere between 5% and 20% of total costs for typical companies. As with employees or cost-of-goods, it tends to scale with growth. More product, more features, more development, more customers, more services, more analysis: it all results in increased costs.

Vertice’s research uncovers just how profound the impact of rising costs is. Over half (55%) of companies are spending more than they did last year on cloud, with a quarter (24%) describing it as a significant increase. Only 5% of companies reported cloud costs being lower than they were in the previous year, while 1% claimed to have reduced these costs significantly.

These findings are supported by data from Vertice’s database, which uses thousands of data points from real purchases to benchmark SaaS and cloud spending. Vertice data published in September 2023 revealed that the average spend on cloud had grown by an enormous 35% year over year.

Part of this can be attributed to good things. Most companies tend to grow, especially tech companies. More growth means more cloud usage, and of course more cloud spend.

But it’s not all good news. Some companies are experiencing much higher increases, running into the 250-500% range. This can be down to increased pricing from cloud providers or, as is frequently the case, a big shrug — the confused or resigned look that CFOs give, and often receive, when it comes to confronting a huge, complicated cloud bill.

Cloud can be incredibly detailed, and understanding your RIs from your EDPs isn’t necessarily as obvious as it might seem to some.

Companies are wasting as much as a third of their cloud budget, but don’t always realize it.

Most cloud providers offer incentives to get the best possible value for money, but it’s often a complex process requiring an intimate knowledge of the cloud, and a level of technical expertise not always available to a CFO.

Cloud cost management is not a new initiative. Efforts to curb cloud spending have been maturing for many years, and the discipline of FinOps (a portmanteau of finance and DevOps) is well established inside some businesses.

FinOps is a set of practices and principles aimed at optimizing cloud spending and managing the financial aspects of cloud infrastructure and services.

It combines financial management with the operational aspects of cloud computing to help organizations gain better visibility into their cloud expenses and make informed decisions to control and reduce costs.

Key elements of FinOps include budgeting, cost allocation, monitoring, and collaboration among different teams to encourage cost-effective use of cloud resources.

“FinOps is getting a front-row seat with executives globally across verticals and across organizations of all sizeAmid a growing economic slowdown, efficiency has been the main theme with FinOps in the driver’s seat.”

— Tracy Woo, Principal Analyst at Forrester

This growing interest in FinOps is reflected in the research. Only 11% of organizations claimed to have no need or interest in having a FinOps strategy in place, yet just 31% stated that they had established FinOps successfully. Others expressed an interest in doing so, but either had it as a future plan or were struggling to combat a lack of expertise internally.

There is clearly a huge appetite to tackle cloud spend, but companies are struggling to agree on an effective approach.

By now it should be beyond doubt that cloud spend represents a huge opportunity for savings, and is backed by a significant desire inside most businesses to confront.

When asked a specific question on cloud priorities however, cloud costs themselves only featured as the second biggest concern among survey respondents. Just over 1 in 4 executives listed cutting cloud costs as their foremost concern with the cloud (26%), which was much more than hiring new talent (9%) or scaling plans (20%). The most frequently cited concern was visibility, at 44%.

A lack of visibility can be incredibly frustrating for both finance and technology leaders, and has a knock-on impact on a company’s ability to control spending.

Imagine getting a high bill at a restaurant without a proper breakdown of the dishes and drinks. Not being able to understand where you’ve spent your money might be even more frustrating than the expensive fee!

With cloud, this is certainly the case. There are over 200 products within AWS alone, and at least 9 in 10 organizations work with more than one cloud environment, complicating cloud cost management efforts further. Cloud is also primarily owned by engineering, technology or DevOps teams, making efficiency measures an awkward balance between finance and technical departments.

Priorities are not necessarily consistent across market segments. In startups (<100 employees), an enthusiasm to scale rapidly comes close to outweighing concerns around visibility or costs, while in the enterprise (>2500 employees) there is much more likely to be a pressing need to find the right kind of talent to power cloud management projects.

In scaleups (100-500 employees) and in the midmarket (500-2500 employees) the need for visibility is most evident, as the balance between growth and efficiency bears the most pressure.

Getting visibility into exactly why a cloud bill costs what it does is the paramount challenge for executive teams everywhere, but especially in medium sized companies battling competing priorities.

Rising costs can prompt difficult conversations between the CFO and CTO. While both departments want to grow efficiently, the knowledge level, priorities and communication patterns of each can hold them back.

This tension is evident in the data. Finance leaders are almost three times as likely to be concerned about cloud costs than their tech peers, and more than twice as likely to be worried about getting visibility into the cloud.

Technology leaders are instead more focused on hiring challenges (40%), while a further 20% are concerned about how best to scale cloud operations.

This is having a knock-on impact on companies’ ability to drive down costs: a third of leadership teams describe a lack of alignment to be the cause of challenges when attempting to manage cloud costs.

The number one relationship issue as reported by finance leaders was ‘There is a lack of transparency from technical staff on what my organization is spending on cloud’ (55%).

For technology leaders, it was that ‘non-technical staff don’t have the right knowledge/expertise to understand cloud investments’ (41%).

While departments disagreed on the importance of resourcing, both found balancing innovation and cost as frustrating causes of friction between them.

Respondents were asked to rate the intensity of the friction they experience between finance and technology teams with specific relation to cloud management. Finance leaders were slightly more likely than their technical counterparts to report a high level of friction, rating it on average at 3.1 (out of 5) compared with 2.9 (out of 5). The disparity in reported friction levels was much higher between different sizes of organizations.

• Startups: 2.45
• Scale-ups: 3.61
• Midmarket: 2.99
• Enterprise: 1.92

The varying levels of friction between company scales can be attributed to a number of factors, but the added layers of bureaucracy and increased resources in larger organizations likely shields teams from direct conflict and misalignment issues.

In startups, the desire to grow and hustle mentality may achieve something similar. However, the sweet spot for embattled CFOs and CTOs to duel over cloud management priorities appears to be somewhere in between reaching the 100-employee milestone and the 500-employee milestone.

Much of this can be assigned to a single issue, one which surfaced earlier in this research as crucial: visibility.

Finance leaders demonstrably struggle with visibility into and comprehension of cloud costs, while technology leaders get frustrated at this same concern. Almost half of technology leaders explicitly claim that their counterparts in the executive team do not understand the nature of cloud and its associated costs.

This research underlines just how important cloud cost management is for organizations as they step into 2024, but also how difficult it is.

Reducing cloud costs means getting visibility and overcoming friction — and that’s before any of the real work starts.

Developing a robust cloud cost management program (FinOps) takes tooling, collaboration and resource.

Visibility and observable insights

Understanding your spend by category, product or service is the first step to developing a robust cost optimization plan.

Relying on native dashboards from Microsoft and Amazon can be very difficult to understand for without technical knowledge, so look into products that can streamline and simplify cloud information into a single platform.

Automated testing and monitoring

It’s not always obvious where you’re efficient and where you’re not.

Typically it’s a manual process, relying on heavy lifting from technical experts to assess the efficiency of different parts of your cloud environment.

Technology can automate this process and give you actionable recommendations on how to cut wastage and costs.

Get clued-up on cloud-specific programs like AWS’s Enterprise Discount Programme (EDP)

Each cloud provider comes with specific programs to give control to administrators. With AWS, for example, that includes Reserved Instances (RIs), which can be traded to improve efficiency.

There is also EDP contractings, the discount initiative that can often be complex to manage. CFOs should hire or contract experts with a deep knowledge of these kinds of programs, and an understanding of exactly how contracts, commitments and terms operate with each vendor. Optimizing your RI inventory alone can save up to 60% in compute spend.

As one of the fastest-growing organizations in the space, a leading cybersecurity company was increasingly reliant on cloud infrastructure to support its offering. After several years of hypergrowth, however, the finance team realized that its cloud spend was rising by almost 40% each year without a firm understanding what was causing the increase.

Lacking the necessary visibility into what was causing these costs to soar, combined with the fact that its cloud environment was supposedly already optimized, the leadership team was unable to put a stop to unnecessary spending. Utilizing Vertice’s Cloud Cost Optimization product surfaced recommendations across more than ten cost areas. This enabled the company to reduce its cloud spend by 25%, totalling more than $1 million in savings.

Read the full case study here ›

Vertice Cloud Cost Optimization is the only solution built specifically for finance leaders that saves their organization up to 25% on cloud spend. By streamlining, simplifying and segmenting cloud costs into a single platform, CFOs and CTOs can tackle the tricky problem of ballooning expenses and develop smart strategies to save millions of dollars.

Vertice offers dozens of automated tests to continuously monitor your cloud environment, creating advanced recommendations for optimizations with quantifiable savings outcomes – all without requiring meaningful lift on your end. With the Reserved Instance Optimizer, advanced algorithms buy and sell RIs on your behalf, discovering new RI suggestions and cutting your spend significantly. You can also get expert support on EDP and all your cloud contracts with the Vertice purchasing team, ensuring you always get the best possible value for money on your investments.

When combined with the industry-leading SaaS Purchasing solution that saves customers 20% or more on SaaS spend, the Vertice platform offers yet more opportunities to save – with up to 10% additional savings on products like MongoDB through your cloud usage trends.

In August of 2023, Vertice surveyed 600 finance and tech leaders who either own, manage, or participate in their organization’s cloud cost management decision making process to better understand the current state of cloud spend challenges. All responses were anonymized and analyzed in aggregate.