Uncovering Hidden Cloud Computing Costs

Wednesday Dec 21st 2016 by Susan Nunziata
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IT organizations are challenged to manage cloud computing costs in an environment of constant price shifting. Here’s what you need to know.

If you’re struggling to get a handle on cloud costs in your enterprise, you’re not alone. For starters, large-scale cloud providers such as Amazon Web Services (AWS), Google Cloud Platform, and Microsoft Azure are in the midst of a prolonged price war, making it challenging for IT executives to keep up with constantly shifting cost structures. Add to this the challenge of defining your organization’s unique usage requirements – and figuring out how to fulfill these requirements in an economical way. Even more difficult to assess is the labor cost required to manage your cloud migration and deployment.

Let’s start with those price wars. AWS had two price cuts in 2016 alone, and Amazon has slashed its pricing more than 50 times in the past 10 years. Since 2014, cloud prices have dropped 8% across the board, and 451 Research forecasts another 5% decrease over the next year.

Of course, such a broad-strokes look at price cuts belies the intricacies of calculating your own cloud costs. For example, if you’re looking to use the cloud for data storage, you’ll want to factor in the kind of data you’re storing – and how often you need to access it. In many cases, migrating data to the cloud isn’t the expensive part. Rather, it’s a matter of how often and how quickly you need to access that data. If you haven’t properly assessed these needs, you might see cloud costs spiraling upward pretty quickly.

A variety of tools are available to help you figure out your cloud costs. 451 Research offers a Cloud Price Index, which tracks 12 cloud services, including storage, databases, compute, and support. Cloud vendors and third parties also offer an array of options for helping you get a handle on cloud costs. These include Amazon Cost Explorer and RightScale’s Cloud Analytics Service. Billing management and cloud cost-management products are available from Cloudyn, CloudHealth, Cloud Checkr, Cloudability, Apptio, and Uptime Software, among others.

Cloud Adoption On The Rise

Cloud adoption has increased 61% from 2015, according to an InfoBrief from IDC sponsored by Cisco. The report is based on a survey of 6,159 respondents actively using cloud for multiple workload. According to the report, 73% of respondents are pursuing a hybrid cloud strategy and on-premises private cloud spending is projected to increase by 40% over the next two years. But many still lack cloud maturity, with only 31% of respondents pursuing optimized, managed, or repeatable cloud strategies.

A survey of 166 enterprise IT organizations in the U.S., conducted by 451 Research and sponsored by automated cloud management vendor Embotics, reveals that 75 percent of respondents are using more than one public and/or private cloud. With these come the need for a variety of tools from service providers; 54 percent of those using multiple clouds were also using tools from various providers. Sixty-five percent were using some sort of cloud management platform.

With multi-cloud environments becoming commonplace for many enterprises, it’s easy to overlook the work involved in managing all those vendor relationships. Who handles all the bills? Which members of your team will you appoint to monitor usage across your organization? How much training is required? These are all questions to consider before you even begin your move to cloud services.

“Many start by thinking of the cloud as a cost-saving strategy, but they quickly realize that it may not always be so,” writes Andrew Hiller, CTO and co-founder of CiRBA – a vendor offering software defined infrastructure control – in a recent article for Datacenter Journal. “Shifting from a capex-based on-premises model to an opex-based rental model in the cloud is certainly useful, but not if the monthly costs add up to more than the on-premises virtual environments they replace. It takes diligence, planning and proper governance to make sure that the financial side is kept under control.”

Hidden Cloud Costs

There are two basic cloud pricing models: An on-demand offering, in which you purchase services as you need them; and reserved instances, in which you pay upfront based on estimates of your anticipated needs.  And that’s about where the simplicity ends. From there, you’ll have to consider how unanticipated needs and use cases will affect your cloud costs.

While many organizations embrace the cloud as a cost-cutting measure, there may be a period of time in which you’ll need to keep things running on-premises and in the cloud.

This was a factor for BP as it moved 3,000 line-of-business applications and 7,000 servers to the cloud. According to an article in Computer Weekly, Paul Schuster, director of shared services architecture at BP, said “It’s hard for us to really dial-down our fixed costs unless we go for a full datacenter exit which takes time, is costly and so cloud becomes an additive cost until we can get that cost base run down.”

Well over 90 percent of companies surveyed by CompTIA earlier this year claim to be using some form of cloud computing. However, more respondents place themselves in the non-critical use category (38 percent), rather than the full production stage (33 percent).

“This is a good reminder that a significant number of businesses are still learning about cloud concepts and performing experiments, pilots and initial migrations,” said Seth Robinson, senior director, technology analysis, CompTIA, in a prepared statement. Data for CompTIA’s Trends in Cloud Computing study was collected in July 2016 via an online survey of 500 business and IT executives across a variety of industries. The report finds that Software-as-a-Service (SaaS) is the most heavily used service model (74 percent of respondents), though Infrastructure-as-a-Service (in use by 42 percent of respondents) may become the fastest growing model over the next several years. Platform-as-a-Service (in use by 33 percent of respondents) will also grow as companies become more sophisticated with their development approach.

And there’s still much to be learned, particularly when it comes to migrating legacy apps and systems of record to the public cloud.

According to Forrester, labor accounts for over 50% of total cloud migration costs, dwarfing the pricetag of infrastructure and platform services.

If you want to understand your total cloud costs, these three questions are essential to consider before you begin your cloud adoption process:

·  What will my total labor cost be?

·  Which members of our IT team will require additional training to execute and manage our cloud environments?

·  Will we need to hire people with new skill sets to make the most of our cloud deployments?

As Chris Drucker, Senior Director Global Proposition Strategy, Sungard AS, noted in a blog post earlier this year: “Planning is key. The more time spent before migration into the cloud determining exactly what your company’s requirements and internal resources are, the more successful that migration is likely to be in its early stages. When looking at budget, it’s advisable to factor in the costs of making a few mistakes, such as storage needs, at the beginning. Never rush into a decision when selecting a provider as if you make the wrong choice, it can be time-consuming and costly to move your data elsewhere.”

Big Shift To The Cloud

Of course, determining return on your cloud investments requires looking at the big picture within your organization and in your industry as a whole. If you evaluate the cloud based solely on costs, you’ll miss the many benefits it can bring to your organization. Not only does the cloud offer enhanced agility, it may prove essential for any enterprise looking to remain competitive in the next five years.

According to a July 2016 market insight report from Gartner, IT spending is steadily shifting from traditional IT offerings to cloud services. The aggregate amount of what Gartner calls “cloud shift” in 2016 is estimated to reach $111 billion, increasing to $216 billion in 2020. Gartner determines cloud shift rates by comparing IT spending on cloud services with traditional non-cloud services in the same market categories

Overall, more than $1 trillion in IT spending will be directly or indirectly affected by the shift to cloud during the next five years, according to Gartner. The research firm says this will make cloud computing one of the most disruptive forces of IT spending since the early days of the digital age.

"Cloud-first strategies are the foundation for staying relevant in a fast-paced world," said Ed Anderson, research vice president at Gartner, in a prepared statement. "The market for cloud services has grown to such an extent that it is now a notable percentage of total IT spending…As organizations pursue a new IT architecture and operating philosophy, they become prepared for new opportunities in digital business, including next-generation IT solutions such as the Internet of Things. Furthermore, organizations embracing dynamic, cloud-based operating models position themselves better for cost optimization and increased competitiveness."

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