There has been an explosion in cloud computing in recent years, with McKinsey predicting that cloud adoption could generate $3 trillion in EBITDA value by 2030.
Cloud spend is critical for growth and innovation as it offers scalability and agility. Fundamentally, businesses are reliant on the cloud to operate, and they are spending billions every year. Yet companies are finding that their bills are rising as they harness the cloud to use new technologies and explore new opportunities.
In a time of economic downturn, some companies need to find ways to either grow or keep afloat. Businesses are having to make difficult choices - cutting back on teams, making people redundant, delaying investments.
Can cloud usage costs be cut?
Despite the cloud making up a significant part of their budget, there is little to no control over the costs, and many are shocked at the bill at the end of the month.
For some companies, the uncertain economic climate is forcing them to re-evaluate their cloud usage. They need the flexibility of the cloud to execute their new business strategies, yet they are also acutely aware that the nascent revenue streams are not yet developed enough to offset the cost of the cloud services that support them.
Other companies are embarking on cost-cutting initiatives to ensure that they continue to remain profitable, and in some instances, financially viable.
Startups and scale-ups might have built financial projections based on more optimistic economic climates, and they now face the risk of running through their investment cash unless they can restructure their outgoings.
Meanwhile, private equity companies may face a challenge, as for many of them, transitioning their newly acquired businesses to the cloud has been a major plank of their rationalisation strategies. Surging cloud costs could undermine those plans and leave their businesses financially compromised and less attractive to potential purchasers.
Another key area of concern generally is how energy prices might impact the cloud. The fallout from the war between Ukraine and Russia and the effect it has had on energy means that some Cloud Vendors feel they have no option but to increase their prices.
How FinOps can help save money
There is, however, a way that companies can continue to maintain their cloud usage while potentially reducing cloud spend, and that is via a concept called FinOps.
This is a company-wide cultural practice where everyone takes ownership of their cloud usage. Those individuals are supported by a central best-practices group that encompasses teams in Engineering, Finance and Product to enable faster product delivery and gain more financial control and predictability.
Here are the core benefits of FinOps:
- Cost optimisation: FinOps can pinpoint cost optimisation opportunities and reduce waste, leading to lower cloud infrastructure costs.
- Improved collaboration: One core effect of FinOps is that it fosters cross-functional collaboration between the various teams within a business resulting in better alignment and communication.
- Increased visibility: By bringing together people from different segments of a business FinOps enables enhanced visibility into cloud resource utilisation and costs. This has two key impacts: firstly, it makes it easier to manage and monitor expenses, and secondly, it leads to more informed decisions about cloud resource allocation.
Very large companies will have an internal FinOps specialist team. They will look at existing bills and optimise costs but may still lack specialist capabilities and tools around cloud price optimisation. However, smaller mid-size businesses or scale-ups don't have the luxury of resourcing a dedicated internal FinOps team. The reality is that the CTO/CIO doesn't have anyone specialised in this area and isn't always sure what to do to gain control of cloud spend.
Those companies need to look to more-affordable external support. For example, they need to find outsourced specialists that can apply FinOps best practice within their organisation. This can help to bridge the communication gap between the various elements of businesses and provide a catalyst to not just reduce cloud spend but also improve understanding and levels of collaboration.
This expertise can make the difference between a company continuing to maximise the potential of the cloud or having to pull back on costs and, as a result, lose business momentum.
The jury is out on the downturn, and it may not be as bad as some economists feared. But even so, optimising cloud usage and costs is something that needs to be high on the agenda of every company executive, no matter what their background and role.