Cloud computing promises efficiency, flexibility, and scalability, but these benefits can come with unexpectedly high costs. Many businesses struggle to manage cloud environment expenses due to factors like the pay-as-you-go model, automatic scaling, complex pricing structures, and hidden fees.
Without proper cost governance and resource optimisation, cloud costs can spiral out of control, leaving businesses facing significant financial challenges. In this blog, Future-tech’s Director of Operations Richard Stacey explores the reasons behind escalating cloud costs and provides strategies to manage and reduce them effectively.
Firstly, here’s why cloud costs can spiral out of control:
1. Pay-As-You-Go Model
Cloud platforms like AWS, Azure, and Google Cloud operate on a pay-as-you-go model, charging users for the resources they consume, such as compute power, storage, data transfer, and other services.
How does it become costly?
If businesses fail to optimise their resource usage, they end up consuming far more than expected. For example, leaving virtual machines running when not in use or using larger-than-needed instances can dramatically increase costs.
2. Scaling Beyond Expectations
Cloud platforms allow for automatic scaling of resources based on demand. This can be a double-edged sword in terms of end-user benefit and cost control.
How does it become costly?
Without proper controls, automatic scaling can lead to exponential growth in resource usage, especially during periods of high traffic. For example, autoscaling a fleet of virtual machines or containers can lead to a significant increase in costs if traffic spikes unexpectedly.
3. Complex Pricing Structures
Cloud service providers have complex pricing models with various tiers for different services. For example, pricing for storage, computing, networking, and specialised services like machine learning or databases can vary depending on usage patterns.
How does it become costly?
This complexity can make it difficult to estimate and monitor costs accurately. Misunderstanding pricing structures, such as egress charges for data transfer, API requests, or storage tiers, can lead to significant unexpected costs.
4. Underutilised Resources
Resources that are provisioned but not fully utilised, such as idle virtual machines, underused storage, or oversized instances, still incur charges.
How does it become costly?
Many organisations leave resources running longer than necessary, which racks up unnecessary expenses. For example, a development team might spin up large virtual machines for testing but forget to shut them down when not in use.
5. Data Transfer (Egress) Costs
Cloud service providers often charge for data transferred out of their networks (egress charges), such as moving data between regions, between cloud providers, or delivering content to end users.
How does it become costly?
If an application serves large amounts of data globally or frequently moves data between services or regions, these costs can quickly add up. For example, streaming services or large data analytics operations can result in high egress fees.
6. Premium Services and Features
Cloud providers offer advanced features, such as AI/ML services, data lakes, managed databases, Kubernetes clusters, and more, often at a premium.
How does it become costly?
Businesses that leverage these advanced, managed services might underestimate the cost implications. While these services seem convenient and reduce the need for in-house infrastructure, their costs can add up, particularly when usage scales.
7. Vendor-Specific Lock-In
Cloud platforms may offer proprietary tools and services that integrate deeply with their ecosystem.
How does it become costly?
While vendor-specific services can provide significant value, they may also lead to vendor lock-in, making it harder to switch providers or use a multi-cloud approach. Over time, reliance on these proprietary tools can result in higher costs because switching providers would require expensive re-architecting or re-tooling.
8. Multi-Cloud or Hybrid Cloud Complexity
Many organisations use multiple cloud service providers (multi-cloud) or a mix of cloud and on-premises resources (hybrid cloud).
How does it become costly?
Managing resources across multiple environments can increase complexity, leading to inefficiencies, higher management overhead, and cost duplication. For example, maintaining redundant storage or compute resources across multiple clouds can lead to unnecessary expenses.
9. Lack of Cost Monitoring and Governance
Without proper cost monitoring and governance, businesses may lose track of spending on cloud platforms and services.
How does it become costly?
Failure to implement effective monitoring and alerting tools for cloud usage can result in unexpected cost spikes. Many businesses do not have proper cost controls, leading to “cloud sprawl,” where departments or teams spin up resources without oversight, resulting in redundant or unnecessary usage and additional charges.
As most cloud billing is issued on a monthly usage basis, any increasing costs associated with additional use can be some 30 days of incurred additional cost before it is picked up.
10. Frequent Changes and Feature Adoption
Cloud providers regularly introduce new features, services, and price changes.
How does it become costly?
As organisations adopt new cloud features or services without fully understanding the cost implications, they can incur additional expenses. New features may have different billing structures, leading to unforeseen costs.
11. Overprovisioning
Cloud users sometimes provision more resources than necessary for their applications or workloads, fearing performance issues during peak usage.
How does it become costly?
Overprovisioning leads to wasted resources and higher bills. For example, purchasing reserved instances or committing to capacity that is never fully utilised can drive up costs unnecessarily.
12. The End-of-Contract Dilemma
As your organisation nears the conclusion of its cloud contract, having already transitioned all critical infrastructure into the cloud, a new challenge emerges. You’re approaching the end of your pre-agreed term, and with your entire ecosystem now reliant on a specific provider, this is a critical juncture for your business.
How does it become costly?
At this stage, you’re effectively locked into your current provider. The infrastructure, applications, and data you’ve painstakingly migrated make it difficult to leave without incurring substantial costs. This gives the cloud provider a strategic advantage, allowing them to propose renewal rates that can be significantly higher than your initial contract.
In some instances, businesses have seen increases of up to 30%—a jump driven by the complexity and expense of switching providers. Migration, retraining, potential downtime, and reconfigurations all contribute to this prohibitive cost, leaving many organisations with little choice but to accept the inflated renewal, rather than face the logistical and financial burden of transitioning to another cloud provider.
How Can I Manage and Reduce Cloud Costs?
- Avoid cloud first – Maybe everything in the cloud isn’t the answer it seems. Adopt a hybrid data strategy of on-premise services and cloud technology services.
- Critical failure cost analysis – Calculate the worst-case scenario business outcomes. What is the cost to the business if you lose your data/data centre? Is it £1000 a minute, or £1,000,000,000 a minute, or do people’s lives depend on the data centre operating or being connected? Then establish weather a single location or ‘all eggs in one basket’ strategy is right for you.
- Rightsizing Resources – Continuously monitor and adjust resources to match actual usage. Use smaller or optimised instances, and scale resources down when not needed.
- Automated Shutdowns – Implement automated shutdowns for non-production environments, such as development or testing environments, outside of working hours.
- Prepaid Plans – Take advantage of reserved instances or savings plans, which allow you to commit to a certain level of usage in exchange for lower rates.
- Data Transfer Optimisation – Minimise data movement across regions or services. Consider content delivery networks (CDNs) to reduce egress costs.
- Regular Audits – Conduct regular cost audits to eliminate underutilised resources, optimise deployments, and assess cloud usage patterns for efficiency.
Cloud Adoption: A Benefit or a Costly Burden?
Cloud costs are often higher than expected due to the inherent flexibility and dynamic nature of cloud services. While the cloud allows for rapid provisioning of resources to meet fluctuating demands, it also introduces complex pricing structures that can be difficult to navigate.
Without careful management, organisations can easily fall into the trap of overprovisioning, underutilising resources, or even overspending on unnecessary services. This lack of visibility and control over usage can quickly drive up costs, leaving businesses facing unexpectedly large bills.
However, a more significant challenge arises at the end of your initial cloud contract. At this point, your negotiation position is significantly weakened. Despite assurances during initial negotiations that “you are free to leave whenever you want,” the reality is that the cost and complexity of migrating to another provider create an almost insurmountable barrier.
The transition isn’t as simple as walking away—any organisation that has undergone a cloud migration knows that switching providers involves immense financial, technical, and operational burdens. What seemed like a flexible, scalable solution at the outset can quickly reveal its limitations, particularly when renewal time comes. You may find yourself backed into a corner, without the bargaining power you once believed you had. Although the process may have felt “light and fluffy” during the initial stages, when the time for renegotiation arrives, it becomes clear who truly holds the upper hand.
Does the cloud have a silver lining in the end?
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