Cloud Spend 101: What is it, and why does it matter?
Cloud spend is the amount of money an organization spends in AWS and across all cloud platforms. A common belief is that moving to the cloud will significantly decrease your total cost of ownership (TCO) quickly, easily, and almost by default. Unfortunately, reaping the infrastructure cost savings of AWS is not that simple, but it certainly is obtainable. To achieve a lower TCO while simultaneously boosting productivity and gaining operational resilience, business agility, and sustainability, you must strategize your migration and growth within AWS.
The most common mistake made when migrating from on-prem environments to the cloud is going “like-for-like.” Basically, creating a cookie-cutter image of what existed on-prem in the new cloud environment. Because they are two completely different types of infrastructure, organizations end up way over-provisioned using unnecessary and expensive On-Demand Instance pricing.
Ideally, you want a well-developed game plan before migration starts to avoid losing money in the cloud. With the advice and support of a trusted cloud partner, a comprehensive strategy takes your organization from design to implementation to optimization. That puts you in the best position to stay on top of costs during every step of migration and once you’re established in AWS. Cost savings realized in the cloud can be reinvested in innovation that expands business value and grows your bottom line.
The 6 pillars of cloud spend optimization.
While it’s best to have a comprehensive strategy before migrating to the cloud, cloud spend optimization is an ongoing necessity in any cloud environment. With hundreds of thousands of different options for cloud services today, choosing the right tools is overwhelming and leaves much room for missteps. At the same time, there are also a lot of opportunities available. Regardless of where you are in your cloud journey, the six pillars of cloud spend optimization provide a framework for targeted interventions.
#1: Reserved Instances (RIs)
RIs deliver meaningful savings on Amazon EC2 costs compared to On-demand Instance pricing. RIs aren’t physical instances but a billing discount for using On-Demand Instances in your account. Pricing is based on the instance type, region, tenancy, and platform; term commitment; payment cadence; and offering class.
A significant benefit of the cloud is scalability, but the other side of that is individual control. Often, an organization’s team members forget or are not prompted or incentivized to terminate resources when they aren’t being used. Auto-Parking schedules and automates the spin-up/spin-down process depending on hours of use to prevent paying for idle resources. This is an especially helpful tool for development and test environments.
Making sure you have exactly what you need and nothing you don’t requires an analysis of resource consumption, chargebacks, auto-parked resources, and available RIs. Using those insights, organizations can implement policies and guardrails to reduce overprovisioning by tagging resources for department-level chargebacks and properly monitoring CPU, memory, and I/O (input/output).
#4: Family Refresh
Instance types, VM series, and Instance Families all describe the methods cloud providers use to package instances depending on the hardware. When instance types are retired and replaced with new technology, cloud pricing changes based on compute memory and storage parameters – this process is referred to as “Family Refresh.” Organizations must closely monitor instances and expected costs to manage these price fluctuations and prevent redundancies.
Inherent in optimization is waste reduction. You need the checks and balances we’ve discussed to prevent unnecessary costs and reap the financial benefits of a cloud environment. Identifying waste and stopping the leaks takes time and regular, accurate reporting within each business unit. For example, when developers are testing, make sure they’re only spinning up new environments for a specific purpose. Once those environments are no longer used, they should be decamped to avoid waste.
Storage catalyzes many organizations to move to the cloud because it’s a valuable way to reduce on-prem hardware spend. Again, to realize those savings, businesses must keep a watchful eye on what is being stored, why it’s being stored, and how much it will cost. There are typically four components impacting storage costs:
- Size – How much storage do you need?
- Data transfer (bandwidth) – How often does data move from one location to another?
- Retrieval time – How quickly do you need to access the data?
- Retrieval requests – How often do you need access to the data?
Depending on your answers to these questions, there are different ways to manage your environment using file storage, databases, data backup, and data archives. Organizations can estimate storage costs with a solid data lifecycle policy while right sizing and amplifying storage capacity and bandwidth.
Private Pricing Agreements
Another way to control your AWS spend is with a PPA or a Private Pricing Agreement – formally known as an EDP or Enterprise Discount Program. A PPA is a business-led pricing agreement with AWS that considers a specific term and commit amount. Organizations that are already in the cloud and love the service can use their expected growth over the next three or five years to get a discount for committing to that amount of time with AWS. In addition to expected compute services, reservations for reserved instances, and existing savings plans, the business also includes software purchases from the marketplace in the agreement to get further discounts.
Choosing a cloud optimization partner.
It’s easy to know what to do to control spend, but it’s a whole other beast to integrate cloud optimization into business initiatives and the culture of both IT teams and finance teams. Of course, you can go it alone if you have the internal cloud expertise required for optimization, but most businesses partner with an external cloud expert to avoid the expenses, risk, and time needed to see results. Attempting these strategies without an experienced partner can cost you more in the long run without achieving the ROI you expected.
In fact, when going it alone, businesses gain about 18% savings on average. While that may sound satisfying, companies that partner with the cloud experts at 2nd Watch average 40% savings on their compute expenses alone. How? We aim high, and so should you. Regardless of how you or your cloud optimization partner tackles cloud spend, target 90% or greater coverage in reserved instances and savings plans. In addition to the six pillars of optimization and PPAs, you or your partner also need to…
- Know how to pick the right services and products for your business from the hundreds of thousands of options available.
- Develop a comprehensive cloud strategy that goes beyond just optimizing cost.
- Assess the overall infrastructure footprint to determine the effectiveness of serverless or containerization for higher efficiency.
- Evaluate applications running on EC2 instances to identify opportunities for application modernization.
Take the next step in your cloud journey.
2nd Watch saves organizations hundreds of thousands of dollars in the cloud every year, and we’d love to help you reallocate your cloud spend toward business innovation. Our experienced cloud experts work with your team to teach cloud optimization strategies that can be carried out independently in the future. As an AWS Premier Partner with 10 years of experience, 2nd Watch advisors know how to maximize your environment within budget so you can grow your business. Contact Us to learn more and get started!