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Top 10 Facts Tech Leaders Should Know About Cloud Cost Optimization
Top 10 Facts Tech Leaders Should Know About Cloud Cost Optimization


report
Top 10 Facts Tech Leaders Should Know About Cloud Cost Optimization
August 2, 2021
Yes, Seriously, You Should Buy That Cloud Cost Optimization Tool
August 2, 2021
TWTracy Woo
with Lauren Nelson, Bill Martorelli, Duncan Dietz, Diane Lynch


Summary
Tackling wasteful cloud usage and exploding cloud spend is the first step of
cloud management. The good news: You can stop wringing your hands about the best
approach to solve this pain. Cloud cost management and optimization (CCMO) tools
are genuinely here to save the day. Vendors in this market have solved the right
cloud challenge, at the right price point, with minimal red flags to prevent
adoption — and we don’t say that lightly. This report highlights key information
on CCMO for infrastructure and operations (I&O) professionals leveraging public
cloud today.


TOPICS

Cloud Cost Optimization Is An Easy Win For I&O Pros




Supplemental Material




CLOUD COST OPTIMIZATION IS AN EASY WIN FOR I&O PROS

The constant push for innovation isn’t sustainable without mature management and
relentless reduction of existing costs. Not acting (e.g., letting cloud costs go
ungoverned or unoptimized) quickly consumes budget, without notable results.
Most enterprises start their cloud management journey with an easy win — cloud
cost visibility, management, and optimization. According to Forrester Analytics
survey data, 27% of North American and European (US, Canadian, UK, French, and
German) infrastructure decision-makers at enterprises of 1,000-plus employees
track their cloud costs. I&O organizations tackling cloud costs should know 10
key facts about cloud cost optimization (see Figure 1).
     

 1.  Cost optimization isn’t a manual fix. Despite transparent line-by-line
     billing from the cloud service providers, cost optimization isn’t a
     straightforward task, even on a single cloud platform. To show the
     magnitude of the issue, Amazon Web Services (AWS) provides 200-plus
     products and releases roughly 500 new features or services each quarter
     (i.e., there’s constant change). It can bill services as on-demand (per
     second), as reserved instances, or as spot instances — and recently added
     its savings plan. EC2 alone has 43 instance types, with up to 18 sizes per
     instance type. That’s for one cloud; most enterprises use multiple
     platforms. The natural tendency is to problem-solve for cloud cost
     complexity with custom-built spreadsheets and dashboards. This is a
     temporary fix and not a sustainable solution, given the constant stream of
     new instance types, services, and billing options it takes to deliver these
     updates. Your peers have built, sustained, and quickly abandoned these
     efforts, as the results were inaccurate and the required resources didn’t
     justify the continued maintenance.

 2.  Four paths to cloud cost optimization exist. 1) Native platforms provide
     waste identification and suggested term commitments, along with their
     unique ability to give optimization advice at time of provisioning. 2)
     Stand-alone solutions (i.e., CCMO tools) add superior health insights to
     advise rightsizing, deliver advanced forecasting, simplify cloud billing,
     create budget policies, and give cross-cloud cost comparisons. 3) Hybrid
     cloud management suites vary in cost-related capabilities — some offer a
     stand-alone CCMO solution, while others only offer optimization as part of
     the broader suite, with more basic features. And 4) managed service
     providers (MSPs) with multicloud managed services usually white-label or
     package their favorite stand-alone CCMO solution as part of their offering
     but occasionally develop their own (see Figure 2). Stand-alone tools are
     the de facto choice, but take advantage of bundled functionality that you
     get free of charge (via native capabilities bundled within a larger
     management suite or through your MSP).

 3.  Pricing is usually based on yearly cloud spend. Management suites are
     notoriously overpriced and overbuilt, rarely delivering enough value to
     justify the expense. That’s not the case with stand-alone CCMO solutions,
     as they’re usually priced more fairly by percentage of cloud spend per year
     (usually 1% to 3%). This approach aligns price to the scale of usage, makes
     it easy to track, and generally aligns to value delivered. Interestingly,
     this also means that a supplier gets less revenue when it does its work
     effectively; however, your increasing scale of cloud usage more than
     supplements this loss. Variations on this model include pricing
     specifically by compute spend, tiers of cloud spend usage (to increase
     predictability), and a range of on-premises alternatives if you decide to
     extend the capability to your on-premises environments. CCMO vendors do
     offer discounting to power users with massive cloud spends — getting your
     price closer to 1% of spend instead of the de facto 3%.

 4.  ROI comes quickly, making the business case easy. Most first-time users
     will see an ROI either immediately or within the first three months of
     usage. And, as expected, the less efficient the cloud environment, the
     higher the savings. However, we’ve found that even highly efficient cloud
     shops claim significant labor savings (i.e., soft savings) and minor
     speed-to-response savings (i.e., hard savings) when it comes to
     rightsizing. On average, a hard savings will mean a 30% decrease in cloud
     spend upon initial implementation and ongoing 15% savings. Soft savings are
     items such as operational savings, cross-cloud comparisons for migration
     and portability, and better usage of time for cloud-savvy employees. Giving
     the very immediate value for cost reduction, many companies don’t mandate a
     business case for CCMO solutions (e.g., it’s a $30,000 tool to manage $3
     million worth of spend more efficiently).

 5.  Monitoring data typically comes from the cloud provider — not the tool.
     Rightsizing recommendations need a proxy for health to measure against
     spend. Although CCMO solutions need these insights, they aren’t collecting
     them. They lean on native platforms (e.g., AWS CloudWatch or Azure Monitor)
     or third-party monitoring tools to provide this data (e.g., DataDog or
     ScienceLogic). Third-party monitoring data is superior, but even
     best-in-class monitoring tools rely on native insights for services with no
     host. Perceived quality of recommendations directly ties into a trustworthy
     perception of health, so this will be an important factor for selection.
     Furthermore, your rightsizing and forecasting results depend on data across
     a certain period of time. Retention levels vary by provider, so define your
     stance. Longer retention isn’t always better — data can become dated, can
     be expensive to store, and can slow results.

 6.  Expect AWS, Azure, and limited Google Cloud Platform (GCP) support.
     Providing GCP support is no longer considered a leading differentiator.
     Depth of capabilities per cloud platform vary across solutions, but at a
     high level, expect bill visibility, waste identification, and
     infrastructure usage optimization across AWS and Azure. At a minimum, an
     average CCMO tool will provide visibility support for GCP; leading tools
     will also have optimization and billing support. CCMO vendors collect meta
     billing data from providers and can apply your discounting or specialized
     pricing models in such a way that they represent an accurate bill. However,
     their optimization insights are limited to core infrastructure services
     (i.e., compute, database, and storage) (see Figure 3).

 7.  CCMO is a transient market with frequent solution acquisitions. Make no
     mistake, your need for cost optimization will be ongoing, but this is a
     niche area adjacent to a long list of established platforms that are
     bleeding into this market. For example, native public cloud vendors and
     other management platforms (e.g., hybrid cloud managers, container
     platforms, and IT financial management/technology business management) are
     building out aggressively in this space. As capability depth catches up
     among the native platforms, enterprises must weigh the real importance of
     multicloud support and independent opinion with the added complexity and
     cost. Stand-alone CCMO vendors are trying to push out the inevitable by
     deepening their optimization engines, building out differentiated
     visualization, and collecting infrastructure/application methods, and are
     actively looking to tackle the next cloud management challenges.
     Acquisition is the path forward for some, giving them either deeper
     functions or deeper pockets to tackle what lies ahead. Acquisitions
     continue to be numerous (see Figure 4).

 8.  CCMO tools focus on reactive optimization. CCMO solutions don’t include
     orchestration capabilities; they can’t build templates or launch new
     instances. Their recommendations retroactively look at your cloud
     environment to uncover inefficiencies and ongoing improvements. This
     reactive approach is both good and bad. It gives you freedom to pick the
     developer experiences without painful efforts to discover and convert —
     which your developer peers greatly appreciate. But this also means there’s
     a small window prior to optimization where there’s inefficiency, and
     recommendations are limited to infrastructure corrections rather than
     big-picture optimization aligned to architecture or behavior. Getting to
     proactive will take trust and looking at ways to insert optimization into
     the developer workstream, including CliQr and Opsani. Enterprises can also
     pair proactive optimization insights at time of provisioning in the native
     cloud platform (smart advisor) with the more holistic optimization
     recommendations from CCMO tools.

 9.  Reactive optimization requires behavioral changes and reinforcement. Most
     organizations will start controlling cloud costs reactively. This method is
     limited for two reasons; 1) there will be an initial lag for fixing
     mistakes and 2) architectural mistakes made during the initial build
     process can’t be fixed without heavy efforts. The former is often a minor
     pain that still results in some bloated costs, but for developers launching
     massive quantities of resources, the negative impacts can be substantial.
     Issues can include committing to poor-fitting reserved instances, excess
     space for configurations, and failure to shut down all resources when not
     in use. The larger concerns are critical architectural mistakes that
     require massive rework to correct and that aren’t identified by CCMO tools
     but still have massive long-term cost implications. Enterprises that
     actively seek holistic optimization should look at engaging with developers
     in their development platforms with real-time policies, best practices, and
     incentives.

 10. Major cloud users will need a dedicated individual to manage cloud cost.
     Every organization needs someone to own the management and optimization of
     cloud costs. Depending on your scale, your needs may range from a part-time
     owner to a team of five individuals. Most enterprises start with one
     dedicated individual. The analytics and automation in CCMO platforms help
     make simple optimization a part-time affair, but that’s only a small
     portion of the cloud cost manager job. The more time-intensive tasks
     include juggling offset billing schedules, creating sustainable
     communication with finance teams on cloud billing, discerning best
     practices for complex discounting structures, and dividing up costs
     correctly by decision-makers, users, and budget holders. Early efforts
     often focus on onboarding and integration into billing systems, while
     continued efforts focus on tackling the company’s biggest cloud
     inefficiencies. The best fit is someone with not only budgeting/finance
     experience but also project management, compliance, and process design or
     engineering knowledge.


Figure 1Top 10 Facts Tech Leaders Should Know About Cloud Cost Optimization

Figure 2Four Paths To Cloud Cost Optimization

Figure 3Expectations For Stand-Alone CCMO Tooling

Figure 4Acquisitions In The Cloud Cost Management Space



SUPPLEMENTAL MATERIAL

Research Methodologies
This is an update of a previously published report; Forrester reviews and
revises it periodically for continued relevance and accuracy.

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