“Consume Less”

(Gartner Group)

While that is a good piece of advice, it is not exactly actionable. Gartner puts out a lot of good research – and their piece on 8 actions CIOs must take during COVID-19 for financial survival is not an exception. However, we think we can contribute by making it a little less abstract.

We suggest four simple steps to consume less in a way where you will immediately see an impact on your spend.

How to "Consume Less"

Having spent too many years to count helping companies “Consume less”, here are our pocket aces, things you can start doing right now:

  • Start with things that will save you money right now. There are plenty of longer-term (12-18 month timeframe) optimizations, but for cash flow, you need something that puts a dent in spending today. For most companies, that would be cloud spend – your Azure, AWS, Office 365, Salesforce, Workday, etc. spend.
  • Start with the big things. Pick the ones where saving 20% would be “real money”. Yes, there’s money in the long tail, but that’s for next week. You do this by listing itemized spend per service, and sort by cost, descending. This will be a Pareto (80/20) rule optimization.
  • Identify the department or person responsible for that spending. This is harder the larger your organization is, but it is critical.
  • Ask three questions to that person or department:
    1. Is this service/software still needed
    2. Does it need to be as large a server/drive/feature bundle as it is
    3. Does it need to run all the time

Steps 3 and 4 have saved just about every company 10-15%. Most of the time by simply looking at the 20 largest spend units for each service.

If you want to se an illustration of what we mean, we have dived a bit deeper into savings on Azure in the latest edition of Kostner Quarterly Insights. This shows that in average companies can save 20.3% on their monthly Azure-bill. Starting right now. If you want to read more about this, download Kostner Quarterly Insights.

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New storage Elasticsearch tier in AWS

We all know the story of Goldilocks and the Three bears. One bed was too big, one bed was too small, and one was just right.

Well, until now in AWS for storage, it’s either been too big or too small (or too fast or too slow), with fast(ish) EBS and slow S3 being your choices. This has been a challenge for certain large-volume datasets that need fast performance, at least in the early phase.

An example of this has been log analytics. Something many of our customers use AWS (and specifically Elasticsearch) for.

Now, for log analytics at least, there is a “just right” option with UltraWarm storage tier for Elasticsearch. More about UltraWarm and Elasticsearch here.

Pricing wise, the UltraWarm Elasticsearch instances are about 70-120% more expensive than the non-UltraWarm PAYG instances, and can not be reserved at the moment. However, the UltraWarm managed storage is less than 1/5th the price of EBS SSD.

In other words, you can save up to 39% in some scenarios:

Is this a good business case for you? It depends, but we’ll be sure to include this savings opportunity in your Kostner SAVE analysis, if it does.

Interested to learn more? Book a meeting

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A customer in the middle of a cloud journey to Azure asked me this question. They have not yet settled on all architectural decisions for their virtual server environment and they are not running full scale yet. A great question to ask – because one thing you do not want is to limit your flexibility and risk wasting money. After all, isn’t flexibility one of the key things cloud is all about?

Fortunately, the answer is in most cases straight forward:

"Start reserving now!"

There are four main reasons behind this:

  1. The savings on many reservations are so large that payback time is very short. Breakeven is often 5-6 months for a 1-year reservation and 9-12 months for a 3-year reservation.
  2. Most reservations can – at no cost – be changed to other reservations within a similar category of workload.
  3. Reservations for up to USD 50.000 per running 12 months may be canceled.
  4. As Azure fills up, the discount you get for reserving falls over time.

Payback Time on Reservations is Short

Most reservations offer 30-70% discount on an annual reservation.

If we take a 60% discount (typical on many virtual machines) this means that after 5 months on Pay-as-you-Go you will have paid more than the price you will pay for 12 months on a one-year reservation.

Reservations can be changed within the same category

Reservations can be changed within the same category.

This means that if you have made a reservation on ie. compute and you later find out that you will change which servers you are running, then you can change the reservation you made on one type of server to another – at no cost, as long as you are reserving for as much money or more than before.

This is true for most reservations but check this before you buy.
What this really means is that if you expect to use the same or more on ie. “Compute”, then it should not be a problem to buy your reservations now even if all architectural decisions are not made.

Frankly, we almost never experience companies reducing their spending. Most companies start using a new platform like Azure and don’t look back. They will put new things on Azure going forward and migrate relevant workload from on-premises. It is highly unlikely that your cloud spend will be smaller in 6 months than it is now. Even if whatever project you are currently working on should end up not becoming a runaway success, something else will most likely take its place.

Reservations for up to USD 50.000 may be Cancelled

Should the unlikely event happen that you end up with too many reservations this is most likely not a problem. You can cancel up to USD 50.000 per running 12 months. Microsoft reserves the right to charge you a 12% cancellation fee, a fee they are not charging at the time of writing. Why? Because they can resell the capacity at higher unit costs.

Discount levels drop over time

Microsoft has a really good pricing team. They effectively price cloud on a value-based pricing principle. Much like hotels they use advanced yield management algorithms to help drive the maximum revenue possible from the available capacity. What we have observed, is that over time, the discount offered for reserving instances drops. You can see this in FS (old) and FSv2 (current) instances, where the 3-year reservation discount for the old instances have dropped to 50.5%, and the same discount for the new is 64%.

Start reserving now!

Therefore, the answer is so straight forward. And we did not even mention the bonus benefit: you can pay your reservations monthly – it is no longer an upfront payment (although you can chose that, if you have committed spend you need to use, or just too much cash laying around)

The situations where you need to be careful is if you are considering stopping your cloud journey within a very short time frame and you are thinking of making reservations exceeding the 50.000 USD threshold. Again, think across the organization – not project or team-specific.

Actually, we would argue that the decision to start buying reservations is not the tricky one. The challenge will be to find out which reservations to buy – and to ensure that you are covering all areas where you can benefit from reservations. And not buying too many.

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