Is cloud becoming too expensive? And what can you do to control costs?
Last year, Basecamp quit public cloud. CTO David Heinemeier Hansson explained why, citing growing bills, false savings promises, and complexities that weren’t reduced.
In the current climate with businesses concerned about rising costs, are we facing a ‘U-Turn’ on public cloud?
Nordcloud’s Global Head of Transformation Advisory Mark De Groot gives his opinion.
What do you make of this narrative around cloud not being cost effective?
Cloud isn’t necessarily cheaper, but if it’s done in the right way, it provides more value. So the focus shouldn’t be only ‘how can I drive down costs?’ It should also be ‘how do I get better business outcomes?’
With the Basecamp example, one of the concerns is ‘we’re not getting the best or the most value out of cloud’, or ‘we’re not getting what was promised by the hyperscalers’ - who promise things will get better, faster and cheaper.
And guess what, they may be right - if you do things in the right way. But in Basecamp’s case, just moving infrastructure, reconfiguring items in the cloud, it’s likely why they’re seeing greater costs right now.
My questions would be:
- Did you calculate all the costs into your equation?
- Did you setup a proper business case?
- Did you account for the write-off of your on-premises assets?
- Have you considered the costs of upgrading / renewing these in 3 or 5 years’ time?
- What’s needed to scale, what space do you need, electricity, cooling, any other re-investment or maintenance costs?
Cloud isn’t necessarily cheaper, but if it’s done in the right way, it provides more value. So the focus shouldn’t be only ‘how can I drive down costs?’ It should also be ‘how do I get better business outcomes?’
What are they potentially missing out on?
This is key. Two areas:
1. Cost avoidance - things like reliability and outages, security measures, personnel needed. This avoidance of cost (or even worse, damaging your image in the market) should be taken into account.
2. Revenue generation and innovation - creating new business opportunities with cloud-native services. There is, in my opinion, no way you can keep up with the speed and scale that hyperscalers are innovating, investing and developing new services (e.g. AI, ML and data analytics).
What mistakes are businesses making here?
They’re often too focused on technology and infrastructure. What I don’t see is the business side of the transition - the new business opportunities, business models, revenue streams that could be driven by using cloud technology. If you only move data and servers, costs will likely be higher, with no real additional benefits.
That’s why you need a proper strategy. What’s your main goal for moving to the cloud? And how are you measuring success?
Read also: Common cloud integration mistakes.
I’d really like to know if Basecamp had this.
On security, still having your own data center can bring additional risks. With so many attacks, malware, ransomware and others, the question is if and how you can keep up with these threats yourself, or use the power of the hyperscalers?
Having your own data center can bring additional risks. With so many attacks, malware, ransomware and others, how you can keep up with these threats yourself?
What advice would you give?
See cloud transformation as a business transformation, not a technology transition.
Define your cloud transformation KPI’s in terms of business outcome and link these to your migration strategy.
As an example: Say one of your KPIs is to become more flexible. What does flexible really mean to you? How do you measure it? How flexible are you now? Where do you want to be more flexible? And at what cost? If you know this, then you can create a smart transformation plan which drives business outcomes, linking workload migrations directly to the defined KPI’s.
And, create a proper organisation to handle cloud and new ways of working. Train your people and make sure IT works shoulder by shoulder with the business.
Is there anything the hyperscalers can do to help?
Yes, and they already do. Of course their business model is consumption of their cloud services. But, we also see they love to work with partners like Nordcloud that understand their technology in depth and can create the right balance between hyperscaler ‘push’ and customer demand and anticipated benefits. In the end that creates long-lasting relationships everyone benefits from.
With Basecamp for example, a lot of money was going into storage. I’d question (and the hyperscaler should do the same) if that’s all needed. Do you need full backup, across all availability zones and regions, for all the data? Or could you just cover critical data, which would save a lot of money.
A lot of money was going into storage. Is all that needed? Do you need full backup, across all availability zones and regions, for all the data? Or could you just cover critical data, which would save a lot of money.
Should cost be a driver for businesses moving to cloud?
Yes and no. Cost stays of course a basic hygiene factor. And, when done properly, cloud can be cheaper, but you need to be careful only focusing on costs. I’d certainly take the holistic picture, where besides cost you look into business opportunities, value creation, resilience, speed, time to market, security, innovation etc. That should create the business case and your decision to transform.
The biggest change we talk to customers about is seeing cloud as a business platform, not just an IT platform or another type of infrastructure. It brings so much extra value if the focus is new services and new ways of working.
The biggest change is seeing cloud as a business platform, not just another type of infrastructure. It brings so much extra value if the focus is new services and new ways of working.
What should businesses be thinking about with the current climate and cost pressures?
A lot of businesses say they didn’t expect such high costs. We go back to why it’s so critical to build a solid business case. Understand the costs and the value. Then take an informed decision.
FinOps should play an important role here.
FinOps is on the agenda for most companies. But for too many, we still see it being in the first adoption phase. And, as a result, they are struggling with questions like: Who’s paying for this? How do I allocate that? Where did that spend come from?
We see companies that get an invoice from their cloud provider, but have no idea what it’s actually for. They’ll drill down and it’s too late. They’re not looking forward or forecasting, optimising spend. They’re looking backwards and fighting spiraling costs. (Check our budgeting and forecasting guide if you need help here).
And costs aren’t always a bad thing. Maybe a unit is doing more business, or driving a marketing campaign, so these investments are bringing high value. It doesn’t matter if a unit spends 20% more if they’re generating 30% more profit.
Really if FinOps is working in the right way, you should be able to predict costs, spot anomalies and cost patterns early and control them and allocate them accordingly. (See our cost allocation guide for some pro tips on how to do this).
We see companies that get an invoice from their cloud provider, but have no idea what it’s actually for. They’re looking backwards and fighting spiraling costs.
Your guide to cloud cost allocation
This guide gives you a systematic way to get to know your organisation’s cloud spend.
What about when prices go up?
Of course if the hyperscalers raise their prices, that’s a risk. If you’re caught in a vendor lock-in, you’re dependent on the cost structure.
There is unfortunately no easy fix to cover this risk however. You need to consider your applications, data, APIs and storage on the technical side, but also business continuity risks, value and costs when considering moving from one cloud provider to another.
Things that you should surely take into account are architecting for portability, contractual set up, multi-cloud platforms, contingency plans and worse case scenario thinking. We at Nordcloud have a lot of experience in advising clients and creating a fitting exit-strategy.
If you’d like to get in touch to discuss your needs here, go ahead and reach out to us using the form below. We’d be happy to help.
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