How to Manage Cloud Spending to Optimize Costs

When the cloud first emerged on the scene, it was touted for its agility and its flexible pricing. And in recent years, the cloud proved its worth by supporting the sudden shift to remote and hybrid work. But as cloud computing becomes widespread, some organizations are recognizing the need to be more strategic in how they use it. Now that most companies have reached a level of increased maturity with their cloud posture, they’ve learned a lot about what works and what doesn’t.

What we're hearing from CDW customers is that they're not getting what they thought they were going to get out of the cloud. Recently, 32% of respondents to a CDW survey said they were spending between $50,000 and $99,999 with cloud providers each month, and another 30% said they were spending between $100,000 and $499,999. But only 34% of respondents cited flexible cloud spending as a benefit they’ve received from the public cloud.

Expectations can fall short in terms of potential savings, so you really have to do some pre-engineering to optimize your cloud spending. That’s definitely required prior to migration, and it doesn't stop there. You need to continuously improve your operations and modernize your legacy workloads, but it's important to really understand that the effort you put into modernizing is what's really going to give you the value and drive down your overall spending.

While 86% of respondents said they are either very or somewhat confident in their ability to track the costs of their public and private cloud systems, 24% said they found the total cost of ownership to be somewhat challenging. And we’re not exactly surprised to find that some are less than satisfied with the cost of the cloud. In many cases, it's about spending. But in other cases, it's about operational efficiencies.

We did a lot of lift-and-shifts back in the day. That meant that we took bloat to the cloud. If you had workloads that were too big, or that weren't optimized, it didn't really make a difference on-premises (other than needing to buy more storage). But in the cloud, it makes a huge difference. At the time, organizations didn’t look very closely at what they were moving and where they were moving it to. That is something that has shifted a lot, especially in the past five years.

Now, we know it’s important to build an environment where workloads and applications can be placed to meet the needs of the organization, whether it's cost, end-user experience, availability or scalability. Those were things we didn't account for in the past. So, an organization might have expected to spend $300,000 a year on cloud, and instead it spends $600,000 because the workloads weren’t optimized.

Many organizations just thought it was going to be easier, that the cloud was going to fix their problems. Five or six years ago, during the original push, people were more all-in on the cloud than they are today. People were saying, "This is going to fix our problems. This is going to cost us less. This is going to move us from CAPEX to OPEX. It's going to be great." Now, the response is far more hybrid.

What we have found, more and more, is that things got a little out of control. Spending is just not what people expected, especially with the rise of hybrid. The fact that you can do on-premises exactly what you can do in the cloud, by utilizing a private cloud, really makes it a lot more about being efficient with what you have.

According to CDW’s research, cloud costs were the second most frequently cited reason for moving data and workloads back on-premises after migrating them to the cloud. For many organizations, the sticker shock was too high; the costs were way more than they anticipated, and now they're facing a bill that was bigger than what they were paying on-premises.

But that's not always the case, because some on-premises costs are hidden. There are power costs, there's the support for all those racks and servers, there's the associated staff, there's the maintenance on all that gear. If you add up all of the fundamental costs, the total may not be more, truthfully speaking. However, once again, if they did a lift-and-shift and there wasn't some pre-engineering, some prework done as part of the planning process, then yes, an organization could definitely face a surprise when it comes to the price.

According to the research, one-third of respondents said they have already migrated 25% to 49% of their cloud workloads back on-premises, and 43% of those respondents cited costs as their top reason for repatriating. But we suspect many of the companies that go from cloud back to on-premises never fully committed. They may not have planned to the extent that they should have or could have, but they also never committed, in that they still were paying for colocation, they still had their on-premises footprint. As a result, they're still drawing money from it while paying for the cloud and then also for whatever footprint on-premises they maintain.

Most of the companies that we've seen that have completely gone into the cloud are still there. You have to commit, and you have to plan. Without those two things, you may find yourself changing midstream and wanting to go back to on-premises. It really depends on what your business does and what the needs of your business are.

Some of the unanticipated costs that have surprised organizations are for security and compliance. When we first moved people to the cloud, some of them thought they didn’t need to worry about security because the cloud is secure. But what about ingress and egress? What about what's going and coming back that still has to be secured? There were organizations that thought they didn’t need to focus on security or worry about that cost.

There was also a strong belief that compliance costs wouldn’t be a huge concern. Some organizations thought, “If we need HIPAA compliance or a type of financial compliance, we aren't going to have to worry about that because the cloud will take care of it.”

And it does, to a point. But you still have to make sure that it's built correctly, not just assume that it's compliant, which may mean some cloud-native solutions. It may mean additional audits. It may mean additional staff to watch over it.

Upskilling IT employees to work in the cloud is another hidden cost. More than 38% of respondents to the survey said they found the lack of in-house cloud skills to be either very or somewhat challenging for their organization.

But whatever the nature of these hidden costs, we think it all goes back to not putting the right level of planning into migration. As we go through cost-savings exercises, we ask our customers, “Are you using reserved instances? Are you using savings plans?” The answer that we often get is, "Well, not right now, and not for everything. And the reason is because things are changing. So, we don't want to make the commitment for one year or three years."

Then, two years have gone by, and they've paid maximum rates when they could have paid one-third of that by committing to an ROI or a savings plan, or by instituting business-hour scripting that shuts down lower environments when they're not in use. There are various ways to unleash value and extra savings, but it's important for companies to take that into account when planning their cloud journey.