Cloud computing costs vary greatly between different services and vendors. While the majority of organizations can accurately estimate the costs of setting up and maintaining their own IT infrastructure, many cannot accurately estimate the costs of shifting their operations to the cloud.
Cloud computing offers greater flexibility and often an improvement in efficiency. Cloud-based on-demand resources enable organizations to quickly scale up and down, and automation capabilities provide a higher level of efficiency. However, many organizations express uncertainty as to how to accurately estimate the costs of dynamic (and often ephemeral) cloud resources.
To properly estimate, control, and optimize cloud computing costs, organizations need to understand the parameters that impact costs, assess their needs, design a strategic plan, and continuously monitor and optimize usage and billing. To help organizations gain control over costs, cloud vendors offer several pricing models and cost management and optimization tools. There are also third-party tools that can help optimize cloud costs.
This is part of an extensive series of guides about IaaS.
In this article, you will learn:
There are three main components that determine the cost of cloud computing services:
Here are the three main categories of costs typically associated with setting up and maintaining on-premises infrastructure:
Usually, for every dollar spent on infrastructure upgrades, organizations can expect to spend approximately $2 on managing, maintaining and securing the extended infrastructure.
Here are several common cost models used in the cloud, which you can combine depending on your needs.
In this model, cloud services are billed per actual usage. Cloud services may bill for utilization of computing power, storage, networking, or other resources. The advantage is that you only pay for actual usage, and can scale down resources when needed. The downside is that as you add more resources to your cloud deployment, ongoing costs can quickly skyrocket.
In a subscription-based model, cloud customers pay for services upfront. Subscription prices deliver a predetermined package of services for a specified time. The longer the period, the lower the price.
Subscription pricing is common for cloud services that combine multiple hardware and software elements, like platform as a service (PaaS) and software as a service (SaaS). Most cloud providers also offer subscription-based pricing for customers with high spend, allowing them to enter into a corporate discount plan, where they commit to a certain level of cloud spend and receive a discount on some or all of their cloud services.
Reserved instances allow companies to commit to cloud resources for a long period of time, typically 1 or 3 years. The longer the discount, and the more the company is prepared to pre-pay at the beginning of the period, the greater the discount. A three-year term is usually the most cost effective. Cloud providers typically offer discounts of 50-75% compared to pay-as-you-go rates for reserved instances with the same capabilities.
Reserved instances are suitable for steady state loads and long running systems. However, organizations should not use reserved instances for peak loads. Instead, reserved capacity should be used for core components of the system, and additional capacity required during peaks should be handled using pay-as-you-go or spot instances (see below).
Similar to reserved instances, Savings Plans are a flexible pricing model that allows organizations to enjoy lower than on-demand pricing, in exchange for a one-year or three-year specific usage commitment. The commitment is expressed in terms of spend per hour on Amazon services.
AWS offers three types of Savings Plans:
Savings plan offer three payment methods:
Spot instances are usually the lowest-cost computing option, offering discounts of up to 90% compared to pay-as-you-go rates. Spot instances are used by cloud providers to sell off spare capacity. The discount comes with a catch—spot instances can be interrupted at very short notice.
Ordinarily, spot instances can only be used for workloads that are stateless, fault tolerant, or processes that can be stopped and restarted. Cloud optimization technology like Elastigroup from Spot by NetApp can help you leverage spot instances for demanding, mission critical workloads as well.
Learn more in our detailed guide to cloud cost models
Cloud cost management (also known as cloud cost optimization) enables businesses to understand and centrally manage the costs associated with cloud technology, maximize the return on investment in cloud technology, and increase efficiency.
Cloud resources are highly dynamic and may be distributed across multiple locations, services and cloud providers. Easy scalability and deployment are compelling advantages of the cloud, but they also make it easy for IT, devops or engineering teams to run resources without understanding the short-term or long-term cost considerations. The cloud makes it difficult to achieve visibility, and enforce decisions and policies about cloud costs. A cloud cost management strategy can help organizations plan for future consumption and costs of cloud services.
Today the majority of companies use multiple clouds, which makes it critical to adopt multi-cloud cost management strategies. These take into account the costs of different public cloud providers and enable cost management of multiple clouds on one pane of glass.
Here are some of the strategies companies can use to manage cloud costs:
Related content: read our guide to cloud savings
Unlike traditional IT systems, which were well known and static, cloud cost management cannot easily be managed by spreadsheets and manual lists. Automated tools are available which can retrieve metrics from APIs, report on cloud consumption and costs, and make changes to services as necessary. There are two main types of tools—first party tools provided directly by the cloud provider, and third party tools from external vendors.
Related content: read our guide to cloud cost optimization (coming soon)
All public cloud platforms provide cost management tools. These tools are highly integrated with the cloud platform, and are available out of the box without a special deployment effort. Some of these tools are free to use, while others are billed on a pay-per-use model.
In many cases, these basic tools are the fastest way to start managing your cloud costs. However, they have several limitations, which are addressed by third party tools:
Third-party cost management tools can address the functional limitations of first party tools, and commonly provide multi-cloud cost management. Most of these tools are built to reduce cloud costs across a variety of cloud services and workloads, providing clear return on investment (ROI).
However, organizations should thoroughly evaluate the functions of cloud management tools across clouds, understanding how their capabilities map to the specific cost models of each cloud, and evaluating their ability to detect, recommend and automate cost optimizations.
Spot by NetApp not only offers comprehensive visibility into cloud spend, but actively manages and optimizes compute deployments with advanced automation that ensures customers get more out of their cloud for the lowest cost possible. In addition to spend visibility Spot by NetApp delivers dramatic cost reduction and increased efficiency for:
Leveraging Cloud Computing Pricing Models for Greater Cost Efficiency
With over 60% of all cloud costs attributable to compute, focusing on compute infrastructure spend should be of the utmost priority. Get comfortable with all the various public cloud pricing models so you can successfully leverage them all for greater cloud cost efficiency.
Cloud Cost Optimization: 15 Ways to Optimize Your Cloud
Cloud cost optimization ensures the most appropriate and cost efficient cloud resources are allocated to each workload or application. Discover 6 cloud cost optimization tips that can help you build a cost-optimized cloud environment and 9 free tools that can reduce your cloud costs.
Read more: Cloud Cost Optimization: 15 Ways to Optimize Your Cloud (coming soon)
Cloud Savings: 9 Ways to Save in the Cloud
There are two aspects to cloud savings. First, using cloud computing can in itself generate cost savings for organizations. Second, once already in the cloud, organizations need to control and optimize cloud costs. Discover 4 ways the cloud itself can generate savings for your organization, and 5 ways to optimize cloud costs once already in the cloud.
Read more: 9 Ways to Save in the Cloud
Together with our content partners, we have authored in-depth guides on several other topics that can also be useful as you explore the world of IaaS
Authored by Spot.io
Learn how Amazon prices its huge variety of cloud computing services, including detailed guides about popular services like Fargate, ECS, and EMR.
See top articles in our guide on AWS Pricing:
Authored by Spot.io
Learn how Amazon prices its Elastic Compute Cloud (EC2) service, understand pricing for EC2 instances and learn how to estimate your future EC2 costs.
See top articles in our guide on AWS EC2 Pricing:
Authored by Spot.io
Learn how Microsoft Azure prices its services, how to estimate your future costs, and how to optimize costs and reduce your Azure bill.
See top articles in our guide on Azure Pricing:
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