Cloud cost optimization with 2020 hindsight -

Cloud cost optimization with 2020 hindsight

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The first half of 2020 has turned “business as usual” on its head, underscoring the criticality of both the cloud and cloud cost management in our digital era.  

For the last 16 years, the world of IT has been gradually moving from on-premise data centers to the public cloud, with SMBs and enterprises alike, drawn to the promise of scalability and potential cost-savings. But the accelerated rate of consumption and pace of adoption in the first half of 2020 is primarily due to the volatility COVID-19 engendered. 

One of the most prominent examples of increased demand for cloud is Zoom. With lockdowns across the globe, schools, businesses and other groups drove a 2900% increase in daily Zoom usage in just a couple of months. Thousands of other businesses and services in industries such as entertainment, health, finance, education and others, have also experienced massive and unexpected surges in online demand due to shelter-in-place and other quarantine efforts. Many, if not all, major online services are leveraging public cloud resources through providers such as AWS, Azure and GCP, to power their offerings. To support their customer’s needs during the pandemic, vendors scaled up the usage of cloud services quickly. 

In terms of business continuity, companies with traditional data centers, even if they didn’t actually experience outages or delays during the pandemic, are realizing that owning and maintaining physical hardware can be a liability, with lockdowns preventing key IT staff getting to work. Industry experts predict this will drive increased adoption of the cloud

With sustained spikes in usage, there are no doubt also sustained spikes in cloud cost. In theory, the pay-as-you-go model that public cloud providers typically offer can help keep costs low, however the reality is that most companies grossly overspend and many organizations that are already using the cloud still see cost management as a significant pain point.

The cloud bill is delivered to all

While one might think that increased customer demand for online services completely offsets increased cloud costs, the fact is greater user consumption does not always translate into increased profitability. Case in point is Zoom. Thanks to 290 million additional daily users, Zoom reported a 169% increase in Q1 revenue (in comparison to Q1 2019), yet saw their margins shrink by 14% due to increased spending on AWS and other cloud infrastructure to support free users.

On the flip side, online businesses who saw decreased demand, traffic and revenue during COVID-19, no doubt are viewing cloud cost management, not as a nice-to-have but as critical in ensuring their long-term viability.

Whether the business volatility of the last six months has been good or bad for your business, it’s clear that cloud computing is becoming ubiquitous, and while it plays a major role in delivering services to customers, the cloud can  still come with a significant price tag if resources aren’t managed properly. As such, it’s imperative for any company using the public cloud to properly plan and prioritize cloud spend optimization as part of their digital transformation strategies to ensure continued business success. 

Getting started – know thyself, know thy cloud

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” Sun Tzu, The Art of War

Successful cloud cost management starts with an understanding of your organization’s needs. Before you can appropriately apply cloud resources to different areas of your business, you first need to answer questions like what applications you expect to scale, or where are there gaps in your workflows. From there, it’s about mapping the right resources to the right places, creating an implementation plan and sticking to it. As you continue to expand cloud operations into other areas of your business, this process is repeated and continuously improved. 

In practical terms, this would entail some, if not all of the following activities: :

  • Interviewing all product and engineering teams to understand their current, near-term and future projects to anticipate their needs for cloud resources 
  • Reviewing engineering’s projects with your DevOps, SREs, TechOps or FinOps teams to verify requirements for cloud architecture, associated infrastructure and budget. 
  • Verifying with the Finance team that the requested cloud spend is in line with your company’s budget.
  • Ensuring that measures for governance are established as an integral part of any technical roll-out. For example, open source tools such as Cloud Custodian offer a comprehensive library of scripts for reporting on and enforcing compliance with fundamental aspects of cloud management such as new resource labeling or tagging.
  • Gaining comprehensive visibility of all cloud spend by leveraging cloud providers’ native tools such as AWS Cost Explorer, Google Cloud Billing Report and Azure Cost Management. For multi-cloud cost visibility, 3rd party solutions such as Spot’s Cloud Analyzer offer a single pane of glass view for multiple cloud providers.

cloud cost analysis dashboard

Prioritizing your cloud cost management focus

In this blog series we will be focusing on four major areas of cloud resources that can be optimized:

  • Compute
  • Storage 
  • Networking
  • PaaS

All of these are important and depending on your particular cloud environment, some areas may be more relevant than others. However, with over 60% of all cloud costs attributable to compute, we have decided to start with how to optimize compute infrastructure spend. Of equal significance, optimizing compute infrastructure spend has the potential to yield the greatest savings in comparison to all other cloud resources.

In the next blog post of this series, we will focus on how to leverage public cloud pricing models for maximum cost savings.