Why price doesn't equal cost in the cloud

Saving money in IT has always been an important consideration, but due to COVID-19 many corporate strategies and budgets have been pushed off course. For example, relative to pre-COVID levels, the likelihood of undertaking cost reduction initiatives has increased globally by 74 percent, 66 percent of companies are now expected to pursue cost reduction strategies over the next 12 months and it is predicted we will see a 38 percent increase in these cost reduction strategies in the next 12 months, compared to pre-COVID times.

Due to the need for greater flexibility caused by COVID-19 and the need to secure these cost reductions, many organizations are now looking to the cloud. Cloud spending rose by 37 percent to £20 billion during the first quarter of 2020 and, according to Gartner, we saw a 19 percent growth in cloud spending in 2020 even when IT spending overall was down by 8 percent. It goes without saying that there are many benefits to moving to the cloud, one of them being cost reductions, with others including agility, flexibility, scale, working from home capabilities and the transfer of budget allocations from CapEx to OpEx.

Organizations need to look at how to do the right due diligence upfront when choosing cloud services as it will help achieve their IT budget goals in the long term. In many cases, price doesn’t always equal cost and organizations need to look at the different services and costs available before they deploy to the cloud, as different approaches to cloud technology and pricing could save them money in the long term.

Are we overspending on cloud?

In many cases, issues at the time of cloud adoption can prove costly to an organization over the long term. For most, the top cloud initiative for 2020 was optimizing the existing use of cloud through cost-saving. That is because organizations can often make mistakes during the adoption and due diligence process which can lead to them overspending on cloud services by 20-50 percent indefinitely.

In many instances, using a hyperscale cloud provider runs the risk of an organization paying for more than they consume in the cloud, as organizations can often end up paying more for CPU and RAM, but their company will only use a fraction of what has been allocated to them. Many cloud environments are configured more often than not to meet the application vendors’ specifications, which means that organizations end up in a situation where the resources they are paying for are simply not consumed. So, when organizations are paying for consumption they can still allocate and configure to what they actually consume but still meet the vendors’ specification. This mistake with pricing models is why many organizations end up overspending by 20-50 percent indefinitely on their cloud services.

Additionally, in terms of storage models in the cloud, many hyperscale cloud providers will have additional transactional costs, meaning an organization’s overall cost will be higher and can fluctuate significantly.

Traditionally, hyperscale cloud providers are the most widely adopted. But the reality is that just because they are popular doesn’t necessarily mean they are the most cost-effective for many organizations. Hence, organizations should only be paying for what they are consuming in their cloud environments and picking the right consumption, pricing and storage models from their cloud provider as it can make a significant difference.

The hidden costs of the cloud

When migrating to the cloud many organizations will ask 'what is the price of cloud?' When making a cloud purchase or migrating, many organizations look at it in terms of how much compute and storage they need. However, even with compute and storage, the process is not as straightforward as you may think. With many providers, there will be additional components that organizations need to factor in before making a purchase, such as backup, monitoring, security (firewalls, antivirus etc.) and support.

When organizations are looking at the initial pricing of cloud services the additional components may not be factored into the equation, or organizations may assume they are included in the service. But frequently these components are sold separately at an additional cost by hyperscale cloud providers and the fully scoped service may end up costing more. When choosing your cloud service provider, organizations need to make sure all the additional components are included in the overall cost as the lowest initial price doesn’t always mean the lowest costs long term.

How to save on cost in the cloud 

To avoid these costly mistakes, organizations need to adopt the below framework which can effectively reduce the total costs of IT and prove it before deploying to the cloud. 

Understand your driver for change to the cloud

Evaluating your drivers to deploy to the cloud is important when looking to reduce costs as it can temper expectations of what is possible in terms of cost reduction. Organizations need to consider what their driver for change is, but to make sure to preserve what their applications and their business require also.

The lowest price doesn’t always equal the lowest cost

When considering different cloud service providers organizations may be tempted to pick the cheapest one. However, it is important to consider that this low price maybe because the cloud service provider will only cover the basic needs of the organization and there will be many additional costs on top of this.

Measure twice, cut once -- calculate costs before you deploy

Cloud can be easy to deploy, but it can be very costly along the way due to mistakes made. Therefore, organizations need to measure the cost performance before they deploy to the cloud.

Cloud infrastructure matters

With all the different cloud provider offerings, there will be technologies that will be superior to others for an organization’s specific business needs - from compliance requirements to service and support levels. Therefore, organizations must evaluate which provider will give them the best offering and cloud infrastructure for them. Choosing the right service cloud provider for your organization is sometimes a confusing task. But doing the right due diligence upfront will help reach IT budget goals in the long term. Organizations need to take into consideration what the right consumption, pricing and storage models are for them, establish if there are hidden costs for additional components like security and support, and adopt the framework outline to secure the best price for cloud services not only initially, but in the long term.

Justin Augat is VP of Marketing at iland