Public cloud customers are not immune to broad inflationary trends, but they have plenty of tools to help soften the blow.
Apparently, cloud buyers are resigned to price increases — reported chiefly in security, compute and networking services — and are relying largely on the providers themselves for guidance and tools to help them economize. Data from a 451 Alliance survey reveals that customers are willing to sustain substantial price hikes before switching providers, and that the most popular way to cut cloud spending is also the easiest: reducing waste.
The pay-as-you-go convenience of public cloud comes at a cost
On-demand prices for virtual machines, storage and connectivity are more expensive than rates for resources provisioned and paid for in advance. Yet on-demand purchasing remains the most popular way to buy public cloud infrastructure. In a market where IT buyers are spoiled for choice, customers appear to be using public cloud strategically, not as a default option, but one that takes advantage of the scalability, flexibility and management of the “not my infrastructure” operational expenditure approach. While this can complicate the overall IT environment, the march of application workloads to public cloud continues.
Most IT transformation lies ahead
Over 75% of respondents expect their IT environments to undergo moderate or major transformation over the next three to five years, with those in finance, healthcare and software/IT services anticipating the most drastic change. Hesitation in undertaking this work may reflect a case of double jeopardy: 37% of public cloud users describe their current environment as “highly complex” (i.e., 8-10 on a 0-10 scale), likely because of the variety of deployment venues in use. The lion’s share (79%) of environments contain a mix of on- and off-premises resources, with larger companies (in terms of headcount or revenue) more likely to be running such hybrid IT estates.
On-demand remains the most preferred pricing model for public cloud purchases
While many public cloud users have multiple pricing models in their accounts, on-demand usage billed in arrears rises to the top as the preferred way to use and pay for cloud services; this was also the case when we asked this question two years earlier. What has flipped in that interval is the proportion of respondents using newer, flexible prepaid spending plans (e.g., AWS Savings Plan or Oracle Universal Credits) versus less-flexible reserved instances: 45% of cloud users now prefer the dollar-based plans (compared with 24% two years ago), while 29% are taking advantage of reserved instances (down from 41%). Variable-priced, cut-rate spot instances remain the least popular option at only 10%. While preference for the on-demand approach spans company size categories, organizations with highly complex IT environments show an above-average inclination toward the across-the-board committed usage model.
Public cloud users are experiencing price hikes
Respondents reported announced or actual price hikes in multiple cloud categories, with security, compute and networking (including data transfer and egress) topping the list. This may reflect perception due to media buzz (as when Google Cloud announced a bunch of targeted price adjustments in March) as well as “generation abstraction” (i.e., organizations purchasing more advanced services) as cloud usage and workloads mature. Whatever the exact constellation of causes, businesses are spending plenty to safeguard their public cloud workloads: According to another recent survey, 37% of information security spending is now allocated to securing off-premises cloud architectures.
Public cloud customers would rather pay up than switch up
Given the current macroeconomic state of affairs (i.e., persistent inflation), it is not surprising that 96% of IT decision-makers would tolerate (or at least resign themselves to) a public cloud price increase before switching to a different provider or “repatriating” workloads to an on-premises or colocation environment. Interestingly, in spite of their more complex IT environments, larger companies (in terms of headcount or revenue) will tolerate lesser price hikes than smaller companies.
Factors contributing to this phenomenon:
- Larger companies spend more on cloud and thus take a bigger hit when prices go up
- Bigger customers have more negotiating power with both incumbent and competing cloud providers
- Larger organizations are more likely to have the in-house engineering talent to accommodate such a switch.
The most popular way to manage public cloud costs is to scale down or shut down underused or idle resources
Old habits die hard: When switching to a public cloud, users may carry over practices that served them well when using owned or leased equipment but leave the meter running on the public cloud. Thus, the top way of managing public cloud costs is to scale down or shut down overprovisioned, idle or unused resources (48%). Other preferred measures rely on options and tools available from the cloud providers themselves — making better use of native cost-optimization tools (44%) and leveraging provider discounts (34%). Refactoring applications for greater efficiency and implementing third-party optimization tools are further down the list of ways to control costs.
Want insights on cloud computing trends delivered to your inbox? Join the 451 Alliance.