During COVID-19, wasting 30 percent of cloud spend is not OK

Even before COVID-19, public cloud adoption was accelerating. The Flexera 2020 State of the Cloud Report highlights that cloud usage is accelerating, with respondents anticipating that cloud spend will increase by an average 47% next year. However, organizations are still struggling to accurately plan for cloud spend, exceeding their cloud budget by an average of 23% last year.

These challenges are likely to be exacerbated by the coronavirus pandemic, as 59% of enterprises expect cloud usage to exceed prior plans. With respondents estimating that they waste 30% of their cloud spend, more cloud spend also means more waste. As cloud spend grows, so does the imperative to optimize cloud spend.

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COVID-19’s impact on cloud

Consider three main factors that can impact an organization’s cloud usage in response to COVID-19 — i.e., increases in demand for existing cloud-based applications, decreases in demand for these applications, and migrating on-prem applications to the cloud more quickly. Understanding these factors is a critical first step to taking control of costs and preventing waste.

1. Increased demand for existing cloud applications. 
   As consumer behavior and business workflows change in response to the COVID-19 pandemic, so do the demands on existing applications that are already running in the cloud. Some industries have seen sharp spikes in demand, such as online retail, video conferencing, e-learning, telemedicine, online government services, and many SaaS applications. This rapid growth means more money is wasted unless companies take steps to optimize use.
2. Decreased demand for existing cloud applications.
   Conversely, industries such as airlines, hotels, and car manufacturers are seeing sharp fall off in demand, which can dramatically reduce the level of cloud use. With revenues falling, it becomes even more important that companies rightsize spend on now unused or underutilized cloud resources.
3. Migrating on-premises applications to cloud more quickly.
   As IT leaders absorb the initial impact of COVID-19 and reassess their longer term plans, some may choose to adjust their cloud migration plans. Companies that were already in the process of migrating to the cloud when COVID-19 spread might accelerate their migration. This could be to ensure business continuity as staff begins to work from home (WFH); to streamline work processes as fewer people are working; to tap into cloud’s reliability during the pandemic; or to rely on supply chain efficiencies, where cloud providers may be able to secure infrastructure more easily than individual companies that are looking for computers and equipment for their data centers.

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With changes in cloud usage comes the need to control waste

Fortunately, the cloud is rife with opportunities for finding savings—and for recovering spend quickly. Think of it much like you would an electric bill. As soon as you turn out a light, you stop being billed for the electricity used to power that fixture. Similarly, the cloud provides opportunities for immediate savings when you either downsize overprovisioned resources or eliminate idle resources. The State of the Cloud Report found that 73% of respondents plan to focus on cloud cost optimization in 2020, making it the top initiative for the fourth year in a row.

However, optimizing cloud costs is an ongoing challenge due to the highly dynamic nature of cloud use. Every time a developer launches an application in the cloud or an operations team allocates more cloud resources, they are increasing cloud usage and spend. Therefore, automated policies are essential to ensure your cloud costs remain under control and you don’t experience unanticipated cloud bills. The State of the Cloud Report found, for example, that less than half of cloud users are leveraging automated policies to rightsize instances or eliminate inactive storage. Implementing automation can help to reduce cloud bills and ensure your cloud spend is efficient.

Leveraging cloud provider discounts is another way to yield significant savings, but it can also introduce inefficiencies. When cloud usage decreases, for example, organizations can be stuck with high levels of spend commitments that prevent them from realizing savings. Even when cloud usage is growing, organizations must carefully manage and monitor discounts, such as reserved instances or savings plans, to ensure that they are aligned with evolving cloud usage.

Organizations can optimize costs as they migrate

The State of the Cloud Report found that 61% of respondents plan to focus on cloud migration for 2020, making it the second cloud initiative behind optimizing cloud spend. In addition, some organizations will accelerate migration projects in response to the pandemic in order to strengthen their business continuity. However, achieving cost savings during cloud migration will become even more important. Organizations will need to address and overcome several challenges as they migrate more workloads to cloud computing.

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Achieving cost savings during cloud migration requires first that you understand what your IT-delivered business services cost on-premises and what they will cost if moved to the cloud. However, this first step is not always easy — the top cloud migration challenge, as reported by 63% of State of the Cloud Report respondents, is mapping applications and their dependencies. While CMDBs provide basic information about application components, they quickly become out of date and don’t provide a complete view of application costs or dependencies on other services. You’ll need to start with a comprehensive view of business services costs, and an understanding of the other services they depend on.

Next you will need to assess costs once you move to the cloud. Lifting and shifting workloads to cloud infrastructure without optimization will always cost more. However, optimizing as you migrate can result in significant savings. There are four main areas to optimize as you migrate:

1. Infrastructure: Take the time to track utilization of CPU, memory, and storage for your on-prem systems over a period of a month or more, then size your cloud infrastructure based on actual usage. Gathering utilization data also allows you to eliminate zombie (idle) instances before you migrate.
2. Cloud providers and regions: Analyze the costs of different cloud providers (e.g., AWS, Azure, and Google) and regions within each to determine which may provide the best pricing for your workloads, thereby offering your best landing zone. This comparison also prepares you for negotiating with cloud providers.
3. Software licenses: Rightsizing and eliminating zombie instances will also reduce your software costs, since you will not be paying for unneeded cores for software licenses. You also need to understand other implications for software licenses as you migrate to the cloud, such as special licensing use rights that might save you money or restrictions that might increase costs.
4. Discounts: Develop a strategy for taking advantage of cloud discounts, such as reserved instances, saving plans, or other spend commitments. Don’t overcommit before you optimize, since that may lock you into bloated levels of spend..

Migrating to the cloud efficiently requires a fresh paradigm for considering workloads. Optimizing as you go is an essential component of cloud migration and can help prevent cloud waste, today and in the future.

For more information, please download the Flexera 2020 State of the Cloud Report.

Kim Weins is vice president of cloud strategy at Flexera. She has held executive strategy and marketing positions at a variety of enterprise software startups and public software companies.

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