How to Grow with the Cloud Without Breaking Your Budget
How to Grow with the Cloud Without Breaking Your Budget
Chances are, everyone in your organization uses the cloud in some form or fashion. Forty-one percent of all IT hosting is now in the cloud; analysts expect this number to rise to more than half by 2025.
But cloud costs are rising—in some cases, faster than business growth—causing companies to struggle. In most cases, they did not anticipate spiraling costs; other organizations may be overpaying for services they don’t need or could use more efficiently.
With cloud use a “must” in today’s business world, halting or postponing your cloud migration and modernization isn’t an option. How, then, do you get a handle on costs? Planning, preparation, and optimizing your cloud use can go a long way toward making this essential technology more affordable and optimizing your business.
Everybody, into the cloud
Infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS), and software-as-a-service (SaaS), the three different cloud types, all serve different purposes. Most enterprises use more than one, often in combination with their on-premises servers and networks.
All this cloud use comes with a price tag—one that’s predicted to nearly double in the next four years, from $900 billion spent on cloud in 2022 to $1.7 trillion in 2026. Worldwide, 15% of total business IT budget reportedly goes to cloud in every industry. That figure may rise as well.
Why the rush?
Innovation at speed is the bellwether of business technology today. Cloud use makes it possible. By placing software, servers, and infrastructure in the hands of cloud service providers (CSPs), companies may also aim to conserve energy, spend less on machinery and employees, and improve productivity.
But as the costs of using the cloud accelerate, will this move continue to be advantageous?
BCG’s Nimbus Pricing Index (NPI) tracks the costs, on average, associated with setting up a standard cloud account, and compares these costs among a variety of cloud vendors. The NPI provides an in-depth look at each vendor’s cost variations over time and in different locations, taking into account tax rates, regulation, and labor and infrastructure costs.
The number-one reason for rising cloud costs
Comparing and contrasting the price CSPs charge for their services and how those prices have fluctuated in recent years is key to managing your own costs of using the cloud.
Fifty-seven percent of companies use CSPs for some of their cloud work; about one-quarter pay CSPs to meet all their cloud needs. These companies may not be surprised to learn that the top reason the cloud is increasingly expensive is because CSPs are charging more and more for their services.
Why some feel blindsided
Few enterprises were prepared for these price hikes. Indeed, many are still not prepared.
Over the last several years, our team has seen:
If you, like many, feel blindsided by what seems a sudden jump in cloud costs, it’s with good reason. From 2007 to 2015, CSPs were aggressively cutting their prices. For instance, virtual machine (VM) pricing fell 12% or more on average. Since then, the price has remained flat. Now, in some cases, CSPs are increasing their VM service price.
Sensitive to the effects of these increases, some CSPs are commissioning their own proprietary computer chips. Some are offering new pricing models and discounts. But whether these measures will have a real effect remains to be seen.
?
SaaS leads the “sky-high-ward” trend
Cloud SaaS services provide an excellent example. Nearly every enterprise uses software hosted in the cloud, be it for communication, collaboration, enterprise resource planning, customer relationship management, productivity, etc. And nearly every enterprise has felt the pain of CSP price hikes.
领英推荐
SaaS prices have risen four times faster than market inflation, according to the Gartner report. Prices have reportedly doubled in five years, as opposed to requiring 18 years to reach the same levels if prices rose at the rate of inflation.
As with cloud costs in general, the primary reason for rising SaaS costs has little to do with businesses’ adopting new tools, needing additional licenses, or adding capabilities. Cloud SaaS costs are increasing because vendors are charging more, for a variety of reasons. Often, cloud SaaS customers find that their contracts do not provide the awareness of, or control over, these changes that they might have expected.
Businesses often have to opportunity to negotiate better terms with their SaaS providers, and it’s important to develop a contract that requires the cloud provider to notify your organization before raising prices.
Some 81% of SaaS vendors have contracts with customers that automatically renew, which can allow continued price increases that you might miss. Other vendors have reduced the discount they’ve been offering to customers—effectively raising their fees without touching the list price.
Before signing any agreement for cloud services, it’s important to fully understand its stipulations and ask for changes when needed.
?
Why cloud costs keep rising
To adequately prepare for price swings, it’s helpful to be aware of what’s happening on the world stage as well as locally. Cloud systems use computer servers and rely on a steady supply of semiconductors. Many key materials for semiconductor manufacturing come from Eastern Europe, which is in turmoil.
Inflation has taken its toll on CSPs as well, which may be passing on their rising costs.
Meanwhile, your enterprise may be experiencing similar pressures, as well as a shortage of cloud professionals to help you optimize your cloud use. Many organizations also do not know exactly where their cloud dollars are going, which causes more challenges.
And yet, to remain competitive, launch new products timely, and meet your customers’ expectations, you must conduct business in the cloud. Cloud use isn’t just a technology budget item: it’s a strategic investment in your business and in reaching its goals.
?
How to get ahead of fast-moving cloud costs
To get ahead of increasing costs, you’ll need to plan and prepare. Typically, companies manage their cloud costs in one of three ways: by managing demand, delivery, and contracts.
These processes should involve many areas of your enterprise, not only IT.
When comparing options, make sure to stress-test your business case with scenarios even more extreme than what you might expect would occur. For instance, if you compare the costs and benefits of using in-house servers vs. SaaS cloud servers, widen the price swings to find your organization’s “tipping point”—the limits of what you can, or will, bear.
Like the clouds in the sky, digital clouds continually shift and change. Withstanding this turbulence requires checking forecasts and having the tools in place to weather any storm. You need to do the same with your company’s cloud use: watch to see what’s coming and be prepared. This may come at some cost for having cloud management capabilities available, but experience shows that this is an investment that pays off. ?
BCG’s NPI can provide you with the visibility and predictability into cloud services required to stay ahead of cloud costs. Having these insights could let you shift your gaze away from your overhead to the near horizon, where your business outcomes await.
?
?
?
Parijat Sen Thanks for Sharing! ?