Growing cloud costs is likely to be a major issue for many organizations in 2024, according to a new report.
Technology expense management company Tangoe has published its third annual "IT Trends and Savings Recommendations" report, analyzing $34 billion in IT spending to uncover tips for finance, IT, and procurement leaders. The report summarizes pricing trends and common overprovisioning mistakes while emphasizing cloud technologies and the impact of artificial intelligence (AI).
With cloud inflation concerns and investments in generative AI both heating up in 2024, the report provides tangible recommendations for stretching budgets based on real-world data and insights.
Key findings from the Tangoe report include:
- Cloud optimization offers the highest potential savings compared with mobile and telecom costs. Direct cloud connection discounts can cut costs by 50-70% through provider comparisons.
- AI analytics are now essential for identifying the most cost-effective infrastructure-as-a-service (IaaS) options amidst complex pricing models and lack of standardization.
- Proactive FinOps strategies are recommended to combat "cloud-flation" from AI-driven cloud expenditure spikes.
- Lessons learned from Tangoe's cloud cost optimization projects emphasize the need for a holistic, granular view into multicloud environments.
How to Combat 'Cloud-flation' in 2024
To combat cloud-flation, organizations should first and foremost take a proactive approach, according to Eric Witt, vice president of Strategic Consulting Engagements at Tangoe.
Witt suggests a tactical approach to governing cloud costs that includes:
- Implementing effective cost governance measures: Implement cost monitoring and detection capabilities with alerts that promptly notify stakeholders of impending cost thresholds, allowing them to make timely adjustments as needed — before the cost overrun happens.
- Cost avoidance: Leverage long-term discounts to pay less for the IaaS services or negotiate with SaaS providers to achieve lower prices through volume discounts.
- Usage optimization: For instance, rightsize and take advantage of IaaS pausing features to use services only when necessary — rather than openly churning and burning through cloud resources
- Consolidating and eliminating SaaS duplicates: Expose shadow IT in software usage to standardize SaaS usage around a lean list of tools. Additionally, pairing SaaS optimization with cloud security initiatives can energize efforts, with security insights and cost optimization working in one motion.
Myths and Misconceptions About Cloud Costs
There is no shortages of myths and misconceptions about cloud costs and how organizations should be managing them to get the best business outcome.
"The biggest misconception is in thinking your cloud costs are under control when they're not," Witt said.
Witt noted that everyone has cloud waste — it's a natural side effect of innovation. As a business grows, there is a need for cloud usage to scale with it at a rightsized capacity. That said, he warned that for organizations that have cloud waste in the beginning, growth only multiplies that waste and costs exponentially.
IT leaders often get hit with a big invoice and think "it's just the cost of doing business." They don't realize how wasteful cloud innovation can be and that there are effective ways to govern costs, if they know how to use them.
"If left unmanaged, spiraling cloud costs can threaten the long-term financial sustainability of innovation," Witt said.
Another misconception cited by Witt is thinking the cloud costs can be optimized with humans and spreadsheets. He believes AI-powered tools are necessary to compare services from different providers and run what-if scenarios to understand which configurations offer the best deal.
"When there are a million ways to purchase one service from a single provider, the human is no longer your best shopping tool," he said.
How to Shop Cloud Providers to Find the Best Savings
The report highlights major changes in cloud infrastructure competition. Organizations can use that competition to find the best savings and improve cloud spending outcomes.
Because the landscape of cloud vendors is so competitive, Witt said organizations must understand pricing models, discounting options, and the vernacular each provider uses in offering reduced rates in exchange for long-term commitments and higher usage tiers.
Witt noted that major cloud service providers have similar services, which can make decisions difficult.
"Often it comes down to price and capability," he said. "In the end, it's more about who is offering you the best long-term deal and where their data centers are located — as that is sometimes also important."
About the authorSean Michael Kerner is an IT consultant, technology enthusiast and tinkerer. He consults to industry and media organizations on technology issues.