The public cloud providers recently announced their revenue for Q3, and the numbers are big and growing quickly. Combined revenue for the big three (Amazon Web Services, Microsoft Azure, and Google Cloud Platform) was $7.5 billion for the third quarter, representing an annualized $30 billion. Wow!
$10 Billion in Wasted Cloud Costs
At RightScale, we’ve been considering how much of the cloud providers’ revenue comes at the expense of cloud users not understanding how they can prevent wasted cloud costs. In the RightScale 2017 State of the Cloud Report, we noted that cloud users estimate that they are wasting 30 percent of their cloud spend, but in reality it’s probably even higher.
In fact, we looked at 60 initial cloud cost optimization assessments that we performed for RightScale customers before they started their optimization efforts and found that the average waste in cloud costs was 35 percent. That nets out to $10 billion in wasted cloud spend each year across AWS, Azure, and Google, and the number will only grow over the coming year as cloud adoption accelerates. The good news is that RightScale Optima, a cloud cost management and optimization solution, can help you identify waste and take action to realize savings.
Optimizing Cloud Costs Delivers Instant Savings
First of all, we need to acknowledge that waste in IT spend is not a new problem. For decades we’ve been buying infrastructure for data centers months or even years in advance of when it is required. And with virtualization, companies spin up virtual machines, usually with more resources than are really required, and often leave them running even when they are no longer being used. There is little impetus to make virtualized environments more efficient since the benefit seems less tangible when the hardware has already been purchased and paid for.
The difference now, in public cloud, is that optimizing resources starts saving you money immediately. The minute that you turn off a resource or scale it down, you are no longer being charged. Next month’s cloud bill will be lower. So now, there is motivation to save money, and instant gratification when you do.
3 Factors Driving Up Cloud Costs
There are three factors that drive waste in cloud spend: the complexity of cloud pricing and billing, the constant change in pricing and features from cloud providers, and the decentralization of cloud use.
1. Complexity of Cloud Pricing and Bills
The first reason there is so much waste in public cloud is because of the incredible complexity of cloud pricing and billing. You need a PhD in cloud costs to understand pricing and track where you are spending money. To illustrate the scope of the problem:
- Cloud bills often have millions of line items. Don’t even try to open up a reasonable-size cloud bill in your favorite spreadsheet.
- Cloud providers offer hundreds of thousands of price points. AWS alone has more than 70,000 price points just on instances.
- Cloud users don’t have visibility into which options are lowest priced. When provisioning resources in the cloud, users often don’t know which of the regions or instance types that meet their needs are the lowest cost.
- There are myriad discounting options. AWS offers reserved instances, with more than 90 percent of those instance price points being for different discount options. Azure has just announced reserved instances and (surprise!) they work differently than those on AWS. Google has its own approach to discounting with automatic Sustained Use Discounts as well as Committed Use Discounts.
2. Constant Change from Cloud Providers
In addition to complexity, there is constant change in your cloud spend. Not only is your usage changing, but cloud providers are also changing pricing, evolving discount models, and adding new services with brand-new pricing models. Just as importantly, they are changing how costs are represented in the cloud bill, breaking automated processes that companies may have created to allocate and analyze the bill.
3. Decentralized Adoption of Cloud
The third reason for waste arises from the bottom-up adoption of cloud. Cloud enables companies to be more agile. Individual development teams or business units can gain instant access to the infrastructure they need through the push of a button or a simple API call. They no longer need to wait for lengthy approval or provisioning processes that were required in the data center.
However, the teams now doing the provisioning often have little reason to ensure the efficient use of cloud resources. Prices for individual VMs or resources seem small, and it’s not until cloud use has grown and cloud spend becomes significant that they become aware of how waste adds up. Even when they realize the problem, their lack of expertise with cloud pricing and lack of visibility into cloud costs makes it difficult to fix the problem.
Most enterprises have centralized cloud teams that are working to reduce cloud costs by making cloud use more efficient, but in order to effect change, they must collaborate closely with cloud users to determine what actions to take.
Where Is the Biggest Waste in Cloud Costs?
The three biggest areas for saving on cloud costs are instances, discounting, and storage.
The biggest area of cloud spend, and hence the biggest area of waste, is for compute instances or virtual machines.
- Over-provisioned instances: On average, data from RightScale Optima shows that 56 percent of spend is on instances. However, typically 40 percent of instances are one to two sizes bigger than needed for their workloads, which wastes 50-75 percent of the spend on each oversized instance. Typical savings is 20-30 percent of instance spend, or 11-16 percent of all cloud spend.
- Idle instances: Many cloud users run their cloud instances 24×7, even when they are only being used during certain hours and days. A common example is developments instances, which often are only needed for weekdays when developers are working. Using RightScale Optima to switch these instances from a 24×7 schedule to a 12×5 schedule saves 67 percent of those costs. Similarly, instances needed for development, QA, training, demos, and other temporary uses are often not terminated once the project is complete. These could be shut down immediately for significant savings.
- Selecting higher cost instance types or regions: Many cloud users don’t realize that there can be significant savings from selecting nearby regions, depending on the instance type selected. For example, of the AWS US West regions, Northern California is more expensive than Oregon. Azure has multiple regions on the east coast of the U.S., and the prices are different for many instance families. In addition, as cloud providers offer new instance types, the new instance types often have better specs and cost less than the instance types they replace. Switching off the superseded instance families can save significant money. Overall, RIghtScale Optima can help you pick the lowest cost options, yielding a typical savings of 3-5 percent of cloud spend.
Another significant area for cost savings is to leverage discounts from the cloud providers by committing to instance usage. Each cloud provider has different rules and approaches to its discounts, but the basic principles for using discounts is the same. RightScale Optima helps cloud users to plan and act on discounting options.
The discount levels and details of how discounts work vary by cloud provider. RightScale guides cloud users in choosing the best options.
Sustained Use Discounts, Committed Use Discounts
1 year and 3 year
1 year and 3 year
1 year and 3 year
Standard: Change AZ, Network type. No region or instance family change
Convertible: Change anything
Change instance family and type.
No region change
Sell on Marketplace (this can be difficult)
Return for 12% fee
No return option
While the cost of storage is typically 10-25 percent of a cloud bill, storage can quickly grow and drive costs higher. RightScale Optima can help cloud users to uncover and eliminate wasted storage costs. The biggest areas for waste include:
- Unattached volumes: Volumes (disks) attached to instances are often not deleted when the instance is terminated for good. These volumes accumulate as instances are stopped and started and can represent a significant amount of waste if not managed. RightScale Optima can help uncover and delete unattached volumes and even take automated action based on policies you define.
- Old snapshots: As snapshots are created for storage volumes, they are often not cleaned up. Each organization has policies for how long to retain snapshots. RightScale Optima can help with automated policies.
- Selecting expensive storage options: Often cloud users select more expensive disks (SSD vs HDD), redundancy options, or access frequency. RightScale helps cloud users uncover options to select the right storage options and avoid overspending.
Cloud Cost Management and Optimization
Organizations adopting cloud are quickly realizing that they need to get a handle on managing cloud costs. Enterprises that already have significant cloud costs are looking to optimize in order to reduce their existing spend and leverage automated policies to keep spend in check. Companies that are earlier in their cloud journeys need to put in place the appropriate reporting and controls in order to prevent cloud waste before it happens. In either case, RightScale Optima can help cloud users by:
- Aggregating and visualizing cloud bills and costs
- Allocating costs to the appropriate cost centers and business units
- Providing automated reporting
- Analyzing spending trends
- Forecasting and budgeting for future costs
- Recommending ways to save money
- Enabling collaboration to take action on recommendations
- Implementing automated policies to ensure efficient spend
To learn more about RightScale Optima, request a demo.