Cloud adoption enables businesses to offer quicker service delivery and better customer experience. A well-optimized cloud integration process ensures faster time to market and gives a competitive advantage to a company. However, it is essential to understand the dynamics of cloud economics to efficiently use cloud-native resources.
What is Cloud Economics?
Cloud economics is focused on the factors that govern the economic equilibrium of cloud computing. A cloud migration decision is a strategic move that primarily concerns the financial impact as well as the risks that a business might experience as a result of this transition.
Cloud economics is a subject of interest for C-level executives of an organization since it helps them optimize costs and performance in a cloud environment.
Why You Should Optimize Cloud Economics?
To fully understand why you should optimize cloud economics, you first need to analyze its value drivers. Let’s explore them one by one:
Economies of Scale
Cloud platform runs on an economies of scale model, which means that a cloud service provider offers a multi-tenant cloud environment where multiple businesses share the same cloud resources. Such an economic model allows many financial benefits to a business.
First, businesses can buy large cloud resources at relatively lower rates. This saves businesses from spending substantial budgets on IT infrastructure. The other financial benefit is that businesses don’t have to pay for unused resources, as they can scale up or scale down their resources dynamically according to their business demands.
Unlike on-premise data centers, where enterprises suffer higher operating costs due to idle hardware, a cloud platform doesn’t cost them for unused resources.
Additionally, companies can rely on cloud-based managed services which help them avoid time- and cost-intensive day-to-day monitoring of their environments, resulting in a financial benefit since they don’t have to hire additional staff for core IT operations.
Global Reach
Another value driver is the increased global reach. When you are on the cloud, you can increase your reach to end-users, since they can access your resources from anywhere in the world. In this way, the companies can reduce the system deployment costs of their on-premises data center. This become particularly beneficial in the modern business world that is heavily reliant on remote workforce post-COVID-19 as more companies are embracing hybrid work models to save costs.
This results in a significant competitive advantage since your employees can collaborate easily on a cloud platform, which will contribute to higher business productivity, faster time to market and, above all, increased cost efficiencies.
Agility
Agility empowers a business to adapt to changes faster. Unlike a traditional on-premises data center environment, cloud adoption allows your business to quickly integrate changes with the changing business demands.
Cloud adoption enables your business to quickly scale up resources during peak times, allowing you to swiftly catch up with the demand surge, which is not possible in on-premises data centers.
Cloud platform offers an agile-enabled environment, making it possible for a business to immediately respond to market demands. This cloud-native feature gives you a clear cost advantage since it saves you from buying additional system resources – hardware, software and supporting components – utilized only during peak times, thus resulting in major cost benefits.
How To Optimize Cloud Economics?
Rightsizing
Rightsizing helps optimize capacity management to make efficient use of cloud resources. It allows you to maximize resource utilization according to the workload demands for a specific period and within a certain budget.
Rightisizing is a quantifiable process and it produces the desired results only when you have the analytics to benchmark your current and future resource consumption. Therefore, you must rightsize your resources based on resource utilization reports performed in real time so that you have the hard data to make the required changes in capacity planning.
When implemented properly, rightsizing can set optimal resources and prevent cost overruns that occur as a result of idle resources.
Remember that rightisizing is an ongoing process and it works only when you accurately benchmark your current workloads and optimize them according to their required demands at a given time. To achieve the desired cost goals, you should also consult with the cloud vendor to guide you on their specific offerings which can help you save money.
Auto-Scaling
Cloud computing gives you the leverage to scale up or scale down your cloud resources according to workload demands. A good example would be the AWS Auto Scaling tool that keeps tabs on your resource utilization and auto-scales resources depending on the current workload demands.
Using the cloud-native auto-scaling feature can dynamically adjust the capacity without causing cost overruns as a result of the over-allocation of cloud resources.
Reclaim Underperforming Resources
Just like in an on-premises data center, cloud resources can also underperform. The only difference is that they exist in a virtual environment and you don’t always know when they are not being utilized efficiently.
Using underperformed virtual machines can have drastic cost implications and can add up to the aggregate costs of your cloud expenses. Therefore, you must check reports of underutilized instances and reclaim those instances so that they can synchronize with other resources to produce optimum results which will help reduce cloud spend.
Purchase Discounted Instances
If you are a committed user of cloud resources then discounted instances can be a financially beneficial move for your business. Discounted instances are lucrative offerings by major cloud service vendors that you can purchase in return for meaty discounts.
When configured accurately, discounted Instances can help you substantially reduce your overall cloud bill. A cloud service provider offers reserved instances, ranging from 1 to 3 years, which requires some thought investment before you purchase them. You need to first benchmark your past utilization and then choose a pricing plan and service tenure that best serves your cloud needs.
Auto-Parking
Auto-parking is a useful strategy in cloud economics that allows you to turn on or turn off your resources according to their utilization. This feature is integrated into major cloud management platforms and it can make things much easier for businesses to optimize costs as they can start and stop their cloud resources based on the predetermined thresholds.
Using the auto-parking feature, you can set a time for cloud resources to turn on during peak hours or turn off while they are not being utilized. You need a tagging strategy to let you know vital information regarding the utilization threshold of your cloud resources. Based on this information, you can set “start/stop” controls on your cloud resources for a given period.
A well-thought-out auto-parking strategy can help you subtract cost consumption of idle cloud resources and you won’t be paying bills for unutilized instances.
The Bottom line…
The financial impact of cloud adoption can vary depending on your business size as well as your organization’s current and future workload demands. To evaluate cloud-specific economic benefits, you first need to take a rounded view of the TCO and ROI factors of your IT inventory, benchmark their cost baselines and then build a cloud cost strategy that can produce profitable results.
To assess the financial impact of your cloud adoption, you need to perform baseline budgeting by calculating your current IT expenditures, cloud migration costs and future cloud expenses. This will give you visibility into integrated costs and enable you to compare your current IT spending to future cloud expenses, and you will be in a better position to understand the overall financial impact and viability of cloud adoption specific to your business.
However, it is first important to acknowledge that the one major financial benefit of cloud adoption is its ability to reduce capital expenses to acquire, maintain and enhance IT infrastructure. By moving to the cloud, you benefit from the tradeoff between capital expenses and operating expenses, since a cloud service provider bears the capital expenses of overall system inventory and supporting components and you pay only for the resources that you utilize.
But even then it is difficult to evaluate the operating expenses since cloud service runs on a complex subscription-based model which includes many variable rates of services. To rule out any possibility of experiencing unforeseen financial impact, you need to cover the entire ground and formulate a clear cloud governance strategy that includes your cloud economics policy. This will allow you to preempt future cloud adoption costs.
Critical to your cloud adoption strategy is the Return on Investment (ROI). Remember that cloud-specific ROI doesn’t tie only with the bottom line. In the long run, it is the value that you get by providing customers with more user-friendly, flexible and agile touchpoints.
Cloud adoption can offer you many invaluable benefits, such as lower operational costs, higher productivity, faster time-to-market and better business performance. However, it only works for organizations that can align their cloud economics strategy with their financial goals.