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Hidden costs
Jan 14, 2016 Guest Blog Post

How to Avoid the 3 Hidden Cloud Cost Traps

Guest blog post by Jeffrey Kaplan, Think Strategies

In my previous blogpost, I discussed how today’s rapidly evolving cloud marketplace is producing an increasingly complex array of service alternatives that is driving more organizations to rely on skilled managed cloud services to successfully harness the power of the cloud.

Another key driver of the movement to managed cloud services is the need to better manage the unanticipated cloud costs that can arise from these ╦ťon-demand” storage and compute services.

There have been a series of recent market research surveys which have brought attention to this growing issue. In 2015, 63% of the 250 organizations surveyed by Sungard Availability Services (Sungard AS) spent $150,000 or more implementing cloud services, a 53% jump from a year ago.[1] While most of the surveyed IT professionals anticipated the upfront costs of moving to the cloud, they did not realize the additional costs associated with using cloud services.

A Dimensional Research survey of 279 IT professionals completed at the Microsoft Ignite show in Chicago in May 2015 found that over half have moved to the cloud to reduce costs and improve their efficiency.[2] In order to achieve these objectives, 72% of the survey respondents said tracking cloud usage and costs is critical. Yet, only 45% rated their ability to track cloud usage and costs very good or excellent.

The Sungard AS survey found many organizations encountered a series of hidden costs that they didn’t discover until their cloud services were in place. The top five most significant hidden costs were:

  • Upgrade costs
  • Customization
  • Internal maintenance costs for patching, data recovery and compliance software
  • Consultancy costs
  • Staff costs to manage their cloud services

These surveys, among others, clearly show that many organizations lack the tools and cloud-specific expertise to properly manage cloud services. As a consequence, these organizations often:

  • Over-provision the cloud services
  • Under-estimate ongoing cloud management requirements
  • Miss opportunities to gain greater ROI from cloud services

Better monitoring of cloud usage is not just important in reducing costs. It is also essential in forecasting future demand for cloud resources. Having a better sense of your usage patterns will enable your organization to better anticipate resource requirements and negotiate a better deal for additional cloud services. For example, Amazon Web Services offers Reserved Instances which allow customers to reserve computing capacity in increments of one or three years, in exchange for a significantly discounted hourly rate (up to 75%) compared to On-Demand instance pricing. The Dimensional Research survey found that a significant proportion of IT professionals understand this benefit. Over half (57%) recognize that obtaining detailed cloud usage data can improve IT forecasting. And, over a third (39%) appreciate that this information can help them compare cloud services, and even implement chargeback programs (37%).

Getting a better handle on current cloud costs, and having a strong understanding of the ongoing (sometimes hidden) cloud costs, is also a key factor in enabling organizations to capitalize on the Infrastructure-as-a-Service (IaaS) price wars that have permeated the cloud industry for the past year. While Amazon and Microsoft have proven that delivering cloud services can be a very profitable business, IaaS prices are already beginning to rise as the market matures, and the focus shifts towards service delivery and innovation.

For example, in July 2015 Fortune Online reported that Microsoft has begun raising the prices of its Azure cloud in the Eurozone by 13%, and by 26% in Australia.[3] After the land-grab price battles of 2015, cloud service providers are trying to recoup some of their operating costs while improving the quality of their services as they become more complex.

THINKstrategies believes a growing number of organizations are going to adopt cloud management platforms, like Cloudnexa’s vNOC, to gain greater visibility into how they are utilizing cloud services so they can mitigate the risks of incurring unnecessary hidden costs. As an example, vNOC grants IT managers the ability to view, manage and provision all of their AWS deployments, enabling them to quickly pinpoint how much resources their project has been using, along with associated costs. vNOC also allows users to automatically start and stop EC2 instances at pre-determined times to prevent wasted capacity. Lastly, Cloudnexa’s technical delivery team boasts 4 employees holding all 5 AWS certifications, an impressive accomplishment considering less than 100 people worldwide hold this distinction. So, their team can provide expert advice and help bridge the cloud knowledge gap present in many organizations.

We think organizations will take advantage of cloud management platforms like Cloudnexa’s vNOC because they provide the automated orchestration, monitoring and measurement capabilities necessary to eliminate the unexpected costs associated with cloud utilization.



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