CIOs sharpen cloud cost strategies — just as gen AI spikes loom

Photogra President Michael Barlow says he wanted to move to the cloud to get out of the never-ending cycle of replacing hardware and servers, but he knew he would have to find an alternative cloud to store the images or run into oppressive Azure bills. He went with cloud provider Wasabi for those storage needs.

“We felt it was time to move to the cloud [in 2021] and provide this capability and flexibility, which would allow us to scale and grow without the need to reinvest in servers,” Barlow says, noting that Photogra’s databases and corporate data runs on Azure but that doing the same for the company’s extensive storage requirements may have made the cloud a non-starter.

Enterprises that try to migrate to the cloud on their own often run into cost and time overruns because of their inexperience, says Junaid Saiyed, CTO of data analytics firm Alation, adding that organizations that adopt self-hosted cloud solutions often do not know how to optimize the cloud’s computing, automation, and financial strategies.

“Opting for a managed cloud offering allows organizations to focus on delivering business value and driving adoption,” he says. “A self-hosted infrastructure is time-intensive, demands specialized expertise, and comes with significant expenses.”

Needing to hire IT talent to keep the train on the tracks — and the bills under control — is another budget issue many CIOs face.

“It’s the people cost — not what you’re actually paying Amazon,” says Thomas F. Famularo, managing director of life solutions at Verisk, who has seen an increase in enterprises using FinOps specialists. “You probably have three engineers that you’re paying more than $20,000 per month. People were complaining but they had to sharpen their pencils a little bit.”

Minding the meter

As IT leaders gain more experience with the cloud, they are also getting savvier about implementing effective strategies to cut operating expenses.

Zulfi Jeevanjee, EVP and CIO at Allstate, for example, says the insurance company has been “very diligent” about shutting off CPU usage when not in use. The CIO says he signed a contract with a cloud provider that gives him an out if he needs.

“If we start trending towards lines that we don’t like, there’s ways in the contract we negotiated and put in place to make sure our costs stay within the parameters that we set,” Jeevanjee says, noting that Allstate did have to commit to a certain level of services to negotiate this clause.

Ciena’s Williams, who is also seeing better deals on renewals, says that since he has a more predictable handle on his company’s own usage, he “can make more intelligent decisions/negotiations come contract renewal time.”

Gen AI: Cloud cost X factor

But even as IT leaders gain a steadier hand on the bottom line of cloud economics, emerging opportunities are complicated the equation.

ADP, a 75-year-old company with considerable experience running data centers, is a seasoned veteran in the cloud. Since it started moving to the cloud almost a decade ago, the company has implemented many tools, managed services, and governance procedures to cut costs on its hybrid multicloud architecture based on AWS.

“There’s a lot more transparency there,” says Vipul Nagrath, SVP of product development at ADP, of the cloud cost landscape today.

Nagrath, who formerly served as ADP’s CIO for eight years, says AWS Lambda’s serverless computing and AWS Graviton processors have reduced ADP’s cloud costs considerably. Additionally, ADP’s management plan ensures all IT managers get daily reports and forecasts of cloud use to stay on top of the cloud spending.

But he and others — analysts and vendors alike — expect the substantial power and storage requirements of generative AI to significantly compound the costs to run those workloads.

“All of our [gen AI] experimentation started, which was something we couldn’t have predicted even six months ago, or a year ago, and so we have seen a spike [in costs] in those areas. But at least we know what’s causing it,” says Nagrath, who believes emerging applications such as AI will continue to make cloud cost management a perennial challenge.

In the meantime, CIOs efforts to contain spend may be combining to slow cloud sales growth somewhat, but vendors are not complaining. The Big 3 vendors — Amazon, Microsoft, and Google — are still selling tons of cloud software, just not at the speed of light anymore. IDC’s Public Cloud Services Tracker shows that worldwide spending on public cloud services will grow 22.2% year over year in 2023, which is down from the 27.6% growth experienced in 2022.

IDC expects global spending on public cloud services to total $656 billion in 2023, which is a “considerable increase” over the $537 billion spent in 2022. “I’m fairly certain all the cloud vendors have been reporting revenue growth this year, even if the growth isn’t as dramatic as in years past,” Rick Villars says.

And as gen AI use in production materializes, CIOs will have to deal with a whole new set of cost challenges. One thing for certain is that the costs will not come down. But for now, how high they will be is an issue for another day.

“There’s just not enough experience there to know what the ultimate costs for gen AI are,” says ADP’s Nagrath.