The fundamental equation for what your monthly cloud bill amounts to is:
P is the unit price, your pay for the services you buy, and Q is the quantity you buy. In this blog, we will focus on P, i.e., how you minimize the unit prices you are paying for the services you consume in the cloud.
But really, this is not new! No, but …
It used to be much simpler
In the On-Prem world we have had a quite well-functioning division of responsibilities. IT knew how to architect, build, and operate the environment and every 1, 2 or 3 years procurement ran a process to drive down unit costs.
This all worked well, and with the help of Moore’s law (driving down prices / getting more performance for the same amount) this meant that IT could see costs remain fairly stable or even go down, despite increased consumption from the business..
Buy and Build is changing … a lot
With public cloud a new level of cost optimization is required for a couple of reasons:
- “Buy” has split into two things: 1. the annual or tri-annual negotiation with major vendors about volume discounts, and 2. The act of buying individual services as you build your infrastructure.
The volume discounts apply to the public price list and is typically single digit. This should be compared to the discounts you can get leveraging discount and smarter purchase options in the price list that offers far bigger savings potential, up to 70% or more – and this is not only by buying reservations!
- “Build” is now happening with bigger speed and agility. The pressure to deliver features and performance faster is huge. The individual decisions in the build phase are well made, but the combined infrastructure offers additional price reductions by pooling resources and allocating existing resources efficiently.
A Quarterly Tune-Up of Cloud Cost is Needed
These two factors in themselves drives the need for a quarterly Tune-Up process (or even more frequent) in order to leverage the “buy smarter” options from the price list.
The need for a quarterly Tune-Up is further amplified by the dynamic character of cloud environments and cloud pricing. Let us give you a few examples:
- Did your cloud provider introduce new reservations you could apply?
- Did your cloud provider introduce new, cheaper services with better performance? (Yes, that happens almost every quarter)
- Can you leverage the pooling of services because your environment expanded?
- Did you provision a new server, where you can save more by applying the BYOL on this new server than where it is used now?
Surely you know of these types of savings, and many of these were considered when you provisioned the service initially, but the changes of pricing and discount models are so plentiful and highly frequent that there is much money to be saved by getting this right. You could say that when cloud providers say that cloud offers speed and agility – this is also very true for their price lists.
What Will You Use Your Savings on?
These periodic Tune-Ups offer significant potential for cost savings.
- In mature companies spending millions annually, with limited growth and few changes in their cloud environment, and with a dedicated team to manage cost, the periodic reviews generate 10-15% annual savings.
- In companies at the beginning of their cloud journey, where the focus is on migrating infrastructure and building new services, the savings potential is typically 15-30%.
- For cloud-native scale-ups focusing on company growth and deploying new features, the annual savings range is even higher at 20-45%.
Even if you do not have a savings agenda for your cloud initiatives, you could surely put the money to better use.
… But How do I Get the Time to do this?
We understand you are very busy, but join us next week where we will explore some of the options of getting this periodic review done faster, whether you are looking to do-it-yourself or with external assistance. Also, we will touch upon the question of who should be doing what internally.
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