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In a recent paper on the impact of COVID-19 on technology buying patterns, Gartner found that that while IT spending this year is likely to fall by 8% spending on cloud computing is likely to increase. The coronavirus pandemic and effects of the global economic recession are causing CIOs to prioritize spending on technology and services that are deemed "mission-critical"  for digital workplace development over initiatives aimed at growth or transformation, a Gartner spokespeople explained in a statement. Despite belt-tightening measures, many organizations are projected to ramp up public cloud computing spending.

“In 2020, some longer-term cloud-based transformational projects may be put on hiatus, but the overall cloud spending levels Gartner was projecting for 2023 and 2024 will now be showing up as early as 2022,” said John-David Lovelock, distinguished research vice president at Gartner, wrote. However, it is also clear that many enterprise leaders are unclear as to the cost of cloud computing and how it will be used across the organization.

Cloud Computing vs. Traditional Computing

Before enterprises look at the cost of cloud projects, they need to examine the financial implications of opting for cloud computing or sticking with a traditional computing model. In a non-cloud model, organizations must deal with an enormous amount of capital spend and the associated depreciation hit for periods ranging from 36 to 60 months depending on accounting rules in the company. In these scenarios, IT leaders had limited or no control over the financial impact of legacy non-cloud infrastructure. Essentially, from a financial impact, these expenses came under the category of uncontrollable spend.

Cloud based deployments, however, put the control back in the hands of IT leaders, allowing them to open or close the faucet based on their computing power, storage, and data processing needs. IT leaders need to evaluate the opportunity cost of going with a cloud (and expense) based model vs. a traditional capital equipment-based model when deploying their dollars. The pricing that we enjoy as a customer of cloud-based platforms scales with increased consumption. Call it Moore's law for cloud computing.

Related Article: A Cost-Cutting Cloud Optimization Strategy for Your Skyrocketing Cloud Bills

Cloud Computing and Remote Work

This is an important point as COVID-19 has changed a great deal about how we approach infrastructure builds and the ongoing support in the enterprise. In many ways, organizations look at cloud-based opportunities as a direct alignment with remote workers and cost-cutting, Patrick Kelley, CTO at Critical Path Security in Canton, Ga, told us.  It is often viewed as an opportunity for organizations to transfer some of the capital and operational expenses that are typically viewed as a loss.

Additionally, as platforms and the underlying technology becomes increasingly advanced, it shifts technical debt away from the organization and onto the 3rd party vendor, requiring fewer highly specialized resources.

The real cost issue, he said, is centred around Shadow IT and project scope creep. Traditionally, adding new servers and storage capacity would require a request through a Change Control process, where several sets of eyes at varying levels in the organization would determine what impact, both positive and negative, the change would have on the organization.

Today, it is as simple and walking through a 3-step process to launch a new instance, he said. That gets expensive very quickly, especially in organizations that perform multiple software development processes requiring additional testing environments.

In 2020, greater than 61% of organizations began the process of migrating to the cloud. However, 58% found it more expensive than expected and 80% have overshot the budget due to unexpected complications. “In our direct experience, we’ve seen the majority of organizations walk back much of the planned implementation while leaving services like Office365 in the cloud;” he said.

Some of these projects are decommissioned, while others land in a bit of a hybrid environment. The cost of integrating the services into their organization, while maintaining visibility into cost and security has been largely unanticipated.

“It's possible to migrate to the cloud and keep costs in check,” he added. “For that to be possible, a well-thought and actionable plan must exist that takes account of potential unexpected complications. Experience is key when migrating to the cloud."

Cloud First, Cloud Native

The use of the cloud may have started with departmental micro use cases, but it has grown bigger than that, especially with the emergence of digital transformation strategies and the construction of digital workplaces. Companies now should have a deliberate cloud strategy, and today a popular choice is a cloud first, cloud native approach that prioritizes investments based on business impact. “A deliberate cloud first, cloud native approach lowers deployment, usage, and maintenance costs associated with cloud spend,” Graeme Thompson CIO of Redwood City, Calif.-based Informatica, said.

This means consolidating multiple accounts into one or two so that cost can easily be rolled up and made visible to the end consumer. Transparency of costs is imperative because there is typically no friction or approval required at the point of consumption, which is great for agility but removes the built-in due diligence that writing a check or approving a PO drives.

Typically, organizations will overprovision and will not do the work to schedule capacity based on when it is really needed. “To minimize cloud, spend, organizations should automate as much as possible. Eventually, as AI and machine learning advances, we will get to a point of self-integrating systems that will lead to even greater cloud savings,” he said.

Financial Challenges

“Cloud computing is often positioned as a more cost-effective alternative to the traditional on-premise environment. However, the cloud can also bring its own challenges such as shadow IT, toxic consumption, bill shock and cloud sprawl which need to be combated by effective governance and control according to John Mattinson, operations director at UK-based Certero.

COVID-19 has acted as a catalyst increasing cloud update as businesses rush to move resources to the cloud, with little planning, to ensure business continuity. These organizations are likely to have poor visibility and control over their cloud estate which can cause spiraling costs that are likely to overshadow any potential savings that the cloud could have offered and become too expensive for some organizations.”

Cloud for Everyone

Cloud is a game changer, and not just for enterprises. It has also provided a way for small-to-medium businesses (SMB) to manage their IT stack. The pay-per-use and on-demand availability model enables small and medium businesses (SMBs) to reduce costs and offload many operational aspects of IT and application development to the cloud providers. For developers, SaaS providers and technology vendors it opens new business opportunities and allows them to create new products and business models.

All of this comes at a price though, Raman Sharma, head of product and program marketing at New York City-based DigitalOcean, said. During prototyping and initial stages of cloud adoption, most cloud offerings appear much better than the alternative (primarily on-premises). However, as the workloads grow and applications need to scale, costs begin to pile up.  Some of the typical costs that businesses face and understand only after achieving a certain scale are related to factors like data transfer and bandwidth

Cloud adoption is not slowing down, but businesses are increasingly being more thoughtful about which cloud to invest in. Thinking about potential long-term costs is what drives decision making, especially in SMBs who do not have unlimited resources.

Business owners are already of the opinion that cloud computing is expensive. According to recent DigitalOcean findings, 60% of founders and technology decision-makers at SMB tech companies think lower prices for cloud services would make cloud spending more worth the investment. SMBs for which technology is not just a means to an end, but also something that they offer to their customers in the form of SaaS offerings, are advanced users of cloud computing and are therefore even more prone to being hit by these increased costs.

The pandemic has accelerated cloud adoption for many businesses as more people are working from home. It is a combination of two things — first, a realization that they need to be spending their time on their core competence instead of managing IT infrastructure and second, a recognition that digital is the way to go. The cloud spend right now is toward optimization but soon will be about innovation and growth. And companies need to make sure that they scale their business, not their costs.