There’s no doubt that the benefits of cloud are vast; increased efficiency and the ability to modify operations in the moment are just some of the perks. But for most CIOs and IT leaders, predicting the cost of these dynamic and frequently fleeting cloud-based resources can be tricky.
In this blog post, we’ll discuss the various components of cloud costs, the trends driving them, and offer tips to help you make the most of your cloud investments.
The cost of cloud
Cloud costs include all of the expenses incurred by an organization for utilizing cloud computing services. These expenditures include various factors and can be difficult to manage due to frequently-changing components and industry dynamics.
While potential cost savings can be a powerful lure for organizations looking to migrate to the cloud, many businesses find themselves unprepared for the actual costs and ongoing expense of cloud operations.
Let’s face it, cloud migration is a huge undertaking, but also the start of a new way of working with new opportunities. For more on cloud migration for businesses, read our popular post What is Cloud Migration? Strategy, Processes, Benefits & Risks.
Understanding the components of cloud costs
Cloud costs can seem complex and overwhelming, but breaking them down into their various components can help simplify the concept:
This includes the servers, storage, and networking required to run cloud services. Organizations need to consider the amount of resources they require and choose the appropriate level of infrastructure to meet their business needs.
There may be charges associated with transferring data between your systems and the cloud provider. Understanding the cost structure and optimizing data transfers can help minimize these expenses.
These fees are also a part of cloud costs, especially when utilizing specialized software applications hosted on the cloud. Businesses should consider the licensing models and any associated fees when evaluating the cost of cloud services.
Overall, understanding the components of cloud costs allows businesses to make informed decisions about their cloud investments. By analyzing these factors and optimizing resource utilization, companies can effectively manage their cloud expenses and maximize the value they receive from their cloud services.
Factors affecting cloud spend
When it comes to cloud spend, there are several factors that can influence how much a business will pay. These factors can vary depending on the specific needs and requirements of the business, as well as the industry it operates in.
One of the key factors that impacts cloud spend is the type and amount of resources used. Different cloud services offer various pricing models, and the more resources a business utilizes, the higher the cost will be. So, bigger organizations that utilize large amounts of storage or multiple cloud-based applications will likely have higher cloud costs compared to those with lower resource demands.
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The duration of usage is another factor to consider. Cloud providers often charge based on usage time. Businesses that require continuous access to cloud resources may have higher costs compared to those that only need sporadic usage.
Hidden egress fees
While most cloud providers allow free data uploads to their infrastructure, downloading or even moving data from cloud storage comes at a cost. These fees, or “egress” charges are one of the hidden costs of cloud computing, and they can quickly add up.
Many businesses don’t account for egress fees when calculating their cloud computing expenses, and end up paying much more than they anticipated, which may inhibit their ability to move between cloud environments.
The specific cloud provider can also impact cloud spend. Different providers have different pricing structures and rates, so it’s important for IT decision makers to carefully evaluate and compare options to find the most cost-effective solution to meet their needs.
By understanding these factors and considering them in cloud investment decisions, businesses can better manage and optimize their cloud costs.
Private vs. public cloud spend
One of the key decisions that organizations face when it comes to cloud computing is whether to opt for a private or public cloud. This decision can significantly impact cloud spend.
Advantages and disadvantages of private cloud
Private clouds are cloud environments that are dedicated to a single organization. They offer enhanced security, control, and customization, which can be particularly important for industries with strict regulatory requirements or sensitive data.
However, setting up and maintaining a private cloud can be costly. Companies need to invest in the infrastructure, hardware, and maintenance, which as you guessed it, can quickly add up. On top of that, businesses will need to hire skilled professionals to manage the private cloud, adding another layer of expense.
Advantages and disadvantages of public cloud
Public clouds, offered by major providers like Amazon Web Services (AWS), Microsoft Azure, and Google Cloud, offer a more cost-effective option. These providers have already made the necessary investments in infrastructure, allowing businesses to pay only for the resources they need and use. Public clouds also offer scalability, meaning businesses can easily increase or decrease their resource usage as needed, further optimizing costs.
While the majority of public cloud services offered by any leading vendor are secure, misuse of the infrastructure contracted by another company can put your business at risk, a successful attack on the main server opens a breach for each client’s system. For industries with high data security demands, public cloud may not be a viable option.
Cloud downtime, which occurs when the service is not working or unavailable due to unexpected outages, updating, or maintenance activities is another disadvantage of the public cloud. While the occurrence is rare, it is extremely costly. On average downtime can cost a user upwards of $100,000/hour.
Cloud spend by industry
For most industries, cloud spending has surged as a strategic investment. While Information Technology may have been the earliest adopter of cloud computing, and quite naturally spend more revenue on cloud-based tech, many other industries have caught on to the advantages of cloud. These include the finance, retail, manufacturing, and healthcare sectors.
% Cloud spend by industry
Cloud spend by country
The U.S. remains the market leader, accounting for 45% of all cloud service revenues in 2022, and is estimated to spend more than $258 billion on public cloud services in 2023.
The European cloud market, a close second, is expected to reach $650 billion by the year 2032. In the Asia-Pacific region, excluding China, cloud spend is expected to reach $200 billion by 2024.
Gartner experts forecast that worldwide, public cloud spend will top $600 billion by Q4 of 2023.
Trends in cloud spending
New industry adoption
New industries are quickly implementing massive efforts to digitize their operations, experts have referred to it as the ‘cloud shift’. According to Gartner, it is expected that by 2025 more than 50% of enterprise IT spend in key market segments will shift to the cloud.
FinTech organizations, for example, are leveraging the cloud to improve financial data analysis and optimize backend operations such as invoice, payment, crypto, and customer management. This trend is expected to continue as more companies within these industries recognize the potential of cloud tech.
Multi-cloud and hybrid-cloud strategies
Businesses are recognizing that a one-size-fits-all approach may not be suitable for their specific needs. Instead, they are adopting multiple cloud providers or combining private and public clouds to optimize costs and improve performance. This allows businesses to leverage the strengths of different cloud platforms and create a more robust and flexible infrastructure.
Cost optimization and resource utilization
As companies become more comfortable with cloud technologies, they are shifting their focus to ensuring they are getting the most value from their cloud investments. This involves monitoring usage patterns, optimizing resource allocation, and identifying areas for cost reduction. By doing so, businesses can not only optimize their cloud spending but also gain a competitive edge in their respective industries.
Tools and best practices for managing cloud costs
When it comes to managing cloud costs, there are a variety of tools and best practices that can help businesses optimize their spending. Here are some tools and practices that IT leaders should consider:
1. Cloud Cost Management Tools: There are several cloud cost management tools available in the market that can provide valuable insights into spending patterns, track and forecast costs, and even offer recommendations for cost optimization. These tools can help businesses gain visibility into their cloud costs and make informed decisions about resource allocation.
2. Usage Monitoring and Optimization: Regularly monitoring and analyzing resource usage can help identify areas of inefficiency and optimize resource allocation. By understanding which resources are being underutilized or over-provisioned, businesses can make adjustments to reduce costs and improve efficiency.
3. Cost Allocation Tags: Implementing cost allocation tags can help businesses assign costs to specific departments, projects, or teams. This level of granularity provides greater visibility into spending patterns and enables businesses to identify areas of high cost. With this information, they can take steps to optimize or reduce expenses.
4. Cloud Cost Governance: Establishing cloud cost governance practices can help businesses manage and control their cloud costs effectively. This involves setting clear cost management policies, defining budget thresholds, and implementing approval processes for resource provisioning.
5. Right-sizing Resources: Ensuring that cloud resources are properly sized to match the actual workload can help optimize costs. By regularly reviewing resource utilization and adjusting the size of instances or storage as needed, businesses can avoid over-provisioning and reduce unnecessary expenses.
By understanding the various components that make up the overall cost of cloud, and implementing cost management tools and the right strategies, IT leaders can optimize their cloud spending and allocate resources more effectively, ultimately achieving their goals while staying within budget.
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