Why Are Cloud Costs So High?

As reported in a recent TechCrunch article, Google Cloud Platform is doubling some of its prices, while Russia's Google, Yandex, is raising cloud service prices by an average of 50%.

Cloud Economist Corey Quinn writes that Google is "setting fire to its reputation" with these price hikes. These price hikes come on the heels of IT decision-makers revealing that they're already spending far more than they'd expected to on cloud services.

In fact, an Anodot survey showed that nearly a third of respondents saw a 25-50% jump in cloud costs, month-to-month, during a six-month period in 2020. The cloud was once touted as an inexpensive way to store and access data. But these days, cloud costs are through the roof—so much so that some businesses are at risk of bankruptcy, and the market capitalizations of public software companies are depressed by $500 billion collectively.

Why are cloud costs so high? In part, it's because the very companies that offer cloud services are raising their prices. But there are other factors at play, too. Let's dig into some of the reasons cloud costs are so high, and how to address them.

Data Gravity

One of the challenges of the cloud is what's known as "data gravity." It's cheaper and easier to move data into the cloud than it is to take it out. This is because once data is in the cloud, it's often subject to the provider's locked-in pricing.

This means that if you want to move your data out of the cloud, you'll likely have to pay a hefty fee. HostDime explains that it can cost up to “20 cents per GB every time you move your data from their cloud storage to your on-premises location.” While higher-volume customers get cheaper per-gigabyte rates, they're still paying to move their data out of the cloud.

This disincentivizes companies from moving their data out of the cloud, and ultimately keeps them locked in. It's a key reason why big companies like Amazon, Microsoft, and Google are able to maintain such a hold on the cloud market.

Overprovisioning

Another challenge of the cloud is overprovisioning. This occurs when businesses pay for high-availability access to data that's rarely used, often because it seems highly affordable at the time.

However, over time, these costs add up, and businesses can find themselves overpaying for data that's rarely accessed.

Reports indicate that almost 40% of cloud spend is wasted due to overprovisioning, making it a top concern for businesses utilizing the cloud. As a CIO article highlights, one issue is that organizations often end up using a complex mix of on-premises and cloud-based solutions, which makes it hard to keep track of what data is actually being used and where.

Forgone Discounts

Another factor that contributes to high cloud costs is discounts that are forgone. Businesses often don't take advantage of available discounts when they're getting started with the cloud.

This is because they're not aware of the discounts that are available, or they don't want to spend the time to find them. However, these discounts can save businesses a lot of money in the long run.

Lack of Visibility

Another reason cloud costs are so high is that there's often a lack of visibility into costs. This can happen when businesses don't have a clear idea of what they're spending on cloud services, or when they don't track their cloud usage.

This lack of visibility makes it difficult to control costs, and often leads to businesses overspending on cloud services. This ties in with the next issue on spiking cloud bills.

Spikes in cloud costs often occur when businesses don't have a good understanding of their cloud usage patterns. As usage patterns change, so do costs. without a clear understanding of how usage patterns affect costs, it's difficult to predict or control spending.

Spikes in Cloud Costs

A big reason cloud costs are so high is because of undetected spikes in usage. This can happen when businesses don't have a clear understanding of their cloud usage patterns, or when they don't monitor their cloud usage closely.

An Anodot survey revealed that more than 25% of professionals take months or weeks or several days to notice a spike in cloud costs. These spikes can cause businesses to suddenly incur large charges for cloud services, which can add up quickly.

The Cloud Oligopoly

Outlawed in 1890 in the US through the Sherman Antitrust Act, monopolies have nonetheless persisted in one form or another.

While there's no single dominant player in the cloud computing market, a few large companies are beginning to emerge as clear leaders. AWS, Azure, GCP, and Alibaba control most of the market, particularly in the hyperscaler segment, in which AWS alone controls 50%. In China, Alibaba controls __38%__of the cloud market.

This concentration of market share is bad news for customers, who have weakened negotiating power when it comes to price or service quality. It's also bad news for startups and small companies, who are struggling to compete against the deep pockets and vast resources of the cloud oligopoly.

Further, public cloud price elasticity is only modestly elastic, which means that increased prices don't lead to a dramatic reduction in demand.

Complex cloud contracts create confusion

Complex cloud contracts can be confusing and often have hidden costs that can catch businesses off guard. It's important to carefully review any contract before signing and to be aware of potential exit clauses, data transmission and connectivity costs, and other add-ons that may not be immediately apparent.

The rising popularity of cloud services has led to a surge in demand for skilled negotiators who can help businesses secure favorable terms. However, the complex nature of cloud contracts can often lead to confusion and disputes down the line.

All of these issues compound and interlink to create the current state of high cloud costs. Businesses need to be aware of the challenges they face when moving to the cloud, and take steps to address them. Only then can they hope to keep their cloud costs under control.

How to Address High Cloud Costs

So what can be done about high cloud costs? As explored in an article by Usage.AI, a company that uses AI to automatically cut cloud costs, there are many ways to cut costs, including:

• Using cloud optimization frameworks
• Rightsizing resources
• Optimizing purchasing strategies
  

For one, it's important to understand the reasons behind the high costs. Once you have a better understanding of the factors that contribute to high cloud costs, you can begin to address them. Businesses need to be proactive about negotiating favorable contracts with cloud providers. This includes being aware of discounts and other potential savings opportunities.

Further, businesses need to take steps to improve their visibility into cloud costs. This includes tracking usage and costs carefully and utilizing tools to help identify areas where costs can be reduced. Businesses also need to be mindful of their cloud usage patterns and take steps to avoid spikes in usage that can lead to unexpectedly high costs.

Finally, it's important to remember that the cloud is a long-term play. The upfront costs may be high, but over time, the cloud can provide significant cost savings. Businesses need to focus on the long-term benefits of the cloud, and not be discouraged by the short-term costs.