Staying Ahead of the Spiralling Cost of Cloud

As most of the working world vacated their premises early in 2020, the cloud market boomed. And it continues to do so today, expanding at around 30% per quarter. In fact, analysts estimate that half of all servers currently being shipped worldwide are being bought by just the top seven cloud providers.

But as the market grows, so do the costs. Public cloud prices are expected to increase by a third in Europe next year as lending rates increase and energy prices soar. While it initially seemed like public cloud would become increasingly more cost-effective, the opposite happened. This year, Amazon’s AWS and Microsoft even admitted that their customers have realised their cloud costs are out of control. In one survey, over 80% of IT leaders said they have begun to halt cloud spending.

There are several reasons for the sprawling costs, says Andrew Cruise, MD of VMware Cloud provider Routed. “First, as the hype around public cloud grew, many businesses started migrating to cloud without doing the necessary proper planning. Careful planning and deployment, using optimised architectures instead of what seems to work for others, can mitigate costs. Secondly, multi-cloud environments have grown increasingly complex, with no comprehensive visibility. Organisations are running different services on the cloud provider that best meets their needs for the given application, with no overarching system to link all these siloes, and have hit a complexity wall – with no way to overcome it within existing budgets and resources.”

But, on the other hand, those who remained on-premises or even migrated back from cloud to on-premises when they hit the proverbial wall, are looking longingly at those who did their homework and are now happily fully functional in the cloud. “The benefits cloud offers are numerous – increased agility and efficiency, longer-term hardware efficacy, greater security, convenience, and scalability. And, yes, it comes at a cost,” says Cruise.

“At first glance, managing your own infrastructure looks less expensive. Cloud adds up over time and amounts to a larger number than the once-off cost of on-premises infrastructure. But when making these calculations, many forget to add the hidden costs: The expertise needed to run the infrastructure, the software and hardware warranties and software licencing or subscriptions that need to be renewed, and the inevitable cost of eventually replacing hardware.”

The good news is that it’s not an either-or decision. “The truth is that every enterprise’s requirements will be different and there is no magic cloud bullet that can meet every need. Those who focus on development will likely want to look at hyperscalers that offer bells and whistles. For those with more straight-forward business needs, that would be a waste and VMware Cloud would make more sense. For others, the solution might be a little of one and a little of the other. Some might even need to keep certain workloads on-premises due to regulatory requirements.”

Though the cost of VMware Cloud licensing is increasing by 10% too, that’s not quite the same rate as public cloud’s 30%. “With the worsening exchange rate, my guess is that most South African VMware Cloud Operators will be increasing their prices in 2023. AWS and Azure rand-denominated price increases are inevitable – rampant dollar inflation and the broad 25% rand/dollar exchange rate deterioration have also not yet been taken into account and I predict increases of 35-50% in the next 12 to 18 months.”

At Routed, however, we’ve decided to absorb these costs. In fact, we haven’t upped our prices since our inception – the benefits of an increasing economy of scale. We are more akin to ‘enterprise IT’, and our IT Channel Partners are less likely to suffer from the inflationary pressures that the native hyperscale cloud are subject to. Whatever cloud solution you choose, know that proper planning can prevent unreasonable costs later – and you’ll then have the best of both worlds.”