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How much should you be Spending on Cloud Services?

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Storage-as-a-Service, Platform-as-a-Service, Device-as-a-Service. The list of cloud services is ever-growing, and so is the list of providers. With this much variety, how is a company supposed to know where to get started?

The list of questions is long. Which services are needed? Which are not? Which vendor is the best fit? How much should be spent on cloud services? The following dives into all of these issues to help companies get off to a strong start with cloud services.

The Variability Of Cloud Services Costs From Business To Business

It is difficult to predict spending on cloud services, mainly because every situation is different and each business has unique circumstances. The cost will vary based on workforce size and daily operations. Larger companies that can utilise more of the cloud services options will pay much more. For larger companies, though, it has become easier to forecast spending. Recent surveys have found that a quarter of enterprises that have at least 1,000 employees spend over U.S. $6 million per year on cloud services. The same amount of respondents stated they spend between U.S. $1.2 million and U.S. $6 million each year. Smaller companies that only need cloud storage will spend a fraction of this amount.

While a handful of small and medium-sized businesses do end up paying as much as some larger companies, the majority end up spending much less. 13% of SMBs spend more than U.S. $1.2 million each year on cloud services. The average spend for SMBs, however, is $120,000 annually.

These amounts are only expected to grow, as many companies are already planning to increase their cloud spending by a minimum of 20% over the course of 2018—a fifth of enterprises are actually planning to double their cloud services spending.

But the truth is that a significant portion of these costs is wasted cloud spend. Experts estimate that about 35% of the money spent on cloud services is wasted spending. That means that the average SMB is wasting roughly U.S. $40,000 each year on cloud services and enterprises can be wasting as much as U.S. $2 million annually.

This waste is caused by several factors. The first is redundancy. Multiple individuals within an organisation will purchase or subscribe to the same cloud service without communicating with each other. So while multiple people could share a single subscription within a department or across the organisation, there are duplicates floating around that are doubling or tripling organisational spend.

Other cloud services waste comes from companies purchasing services that they just do not need and that employees do not end up using. This happens much more often than with other software or hardware purchases because of how easy it is to subscribe to cloud services. Oftentimes, companies will incorrectly associate ease of purchase with a lower cost—leadership puts no limit on cloud services purchasing. This lack of oversight creates a quickly escalating waste in cloud spending.

How To Reduce Cloud Spending Waste

1. Understand How Cloud Services Charge

One of the major reasons for overspending on cloud services is that the pricing can get confusing. There is the base price for a cloud instance, which providers often change, as well as varying billing increments, added instances, and discounting options. It can be very complex.

To fully understand what cloud services will and should cost, companies need to understand the move away from local disks and towards attached storage, the move from per hour billing to per second billing, discounts for committed use and reserved instances, the rapid growth of new instances, and the fluctuations in prices for the various price points.

When it comes to commitment discounts, the basic premise is that when a company commits to using a certain amount of cloud services, the provider will offer a discount. This gives businesses an incentive to pre-commit to a certain amount, rather than just relying on on-demand usage. The downside of this comes when a company does not fully use the cloud services they committed to. This is where organisations can significantly save if they make accurate usage estimations.

However, this does not mean that companies should try and rely solely on commitment-based discounts. They should aim to underestimate and fulfil the rest of their coverage with on-demand usage. In order to make a more precise prediction, though, leadership should consider a few factors. They should think about:

●  How much flexibility they require for their usage.

●  Balancing their long-term savings and how big of a payment they are willing to make upfront.

●  Their future plans for their computing model (serverless, containers, and so on).

●  Whether they will be moving to or opening up in a new region.

●  If they may need to change the instance family that they are in.

●  Whether or not they would like the freedom to change cloud providers in the future.

●  How much their usage will grow or decline over the next year or the next few years.

●  Whether they have steady usage month after month or if they will only need part-time usage for some portions of the year.

●  What their historical usage has been in each region, in each instance family, and more.

2. Only Purchase Needed Services

Another useful method for reducing cloud spend waste is to get the right services from the beginning. There are two main components to effectively achieving this. The first is to comprehensively understand the available services. When a company knows what is out there, they can easily identify what will help them and which cloud services will be shelved soon after they are purchased. The second is to choose one individual who is responsible for vetting all cloud purchases. If any division or employee wants a cloud service, they must first go through this selected individual and clear it with them.

This cloud supervisor must go further than just saying yes or no to services as the requests come in. They must do a deep dive into the company and their cloud services needs on a regular basis. Here are a few of the considerations that the cloud supervisor should look into:

●  The non-cloud IT services that the company employs: All cloud services will need to coexist with the other infrastructure, so understanding this infrastructure is paramount.

●  The best accreditations and certifications that are available in the cloud industry: Knowing this will help the supervisor to identify whether a service is reputable or not.

●  The most common benefits and risks of various cloud services: When the supervisor knows these, they can quickly tell if a cloud service is worth the cost.

●  The biggest hurdles and issues that the company is facing: If there is a cloud service that could remedy a problem, it is probably in the best interest of the company to opt for it.

●  The daily and long-term business systems and operations: Different cloud services are built for specific systems. If the business does not operate in certain ways or use certain systems, they will not need the cloud service

●  The business requirements of cloud services: Some services simply will not be able to function properly in certain businesses.

3. Partner With The Right Vendor

Choosing the right cloud services is a big task. Before broaching this issue, however, companies first need to pick out the cloud vendor that will best suit their needs. This vendor can then, in turn, empower them to pick the services that will most effectively serve their needs.

The most appropriate vendor will always be the one that offers the services that the organisation needs, whether IaaS, SaaS, PaaS, or a combination of the three. But beyond this, there are several factors that companies should look into about any potential vendor.

The first factor is the vendor’s stability. The vendor should be financially stable. If a vendor fails it can be costly to find a new vendor, both in terms of time and money. They should be able to fully comply with the contract, which is especially important when the business expects to scale up their services over time. They should offer top-of-the-line security. They should have the financial ability to upgrade software and hardware when needed.

The second factor is the vendor’s availability and redundancy. If one connection to the internet is disrupted, do they have the infrastructure to provide redundant connections? The same concept extends to a vendor’s environmental controls. They need to have redundant provisions for cooling and power so that all hosted and provided applications are supported. These redundancies should not come at an extra cost, should be tested regularly by in-house tests and external auditor testing, and should be monitored regularly, with strong policies in place if a disruption does occur.

The third factor is the vendor’s customer service record. A company needs to assess how effective a vendor’s customer service is—this is most effectively accomplished

by looking at past and present customer’s experiences with the vendor. Specific factors that organisations should look into include the cost of customer service, average response and resolution time, and how knowledgeable customer service representatives are.

Lenovo is one cloud services provider that has a strong history of providing excellent support. To find out more, please take a look at our Lenovo PRO store.

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