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The King is Dead, Long Live the King! AWS Savings Plans Shake up Cloud Cost Optimization Industry

|November 18, 2019|

Last week, Amazon announced the end of the reserved instance, commonly known as the “RI”, with the announcement of their new replacement, “AWS Savings Plans”. Amazon has been dropping hints for a while that they were heading in this direction, in particular their September announcement stating that all instance type limits would now be based on vCPUs, a move which laid the groundwork behind the scenes for savings plans and most likely a whole lot more that we have yet to see.

Reserved instances were long considered the place to start if you were searching for a way to lower your AWS bill. But, as with many aspects of cloud billing, the rules governing their use were complicated.  Between the ever-growing number of compute instances and service type permutations, the level of complexity led to an entire cloud cost optimization market built around optimizing reserved instances -- an industry that now effectively doesn’t exist anymore. 

No One Cares about Cloud Cost Optimization 

Well, at least not the way it’s traditionally defined. At CloudZero we made a very conscious decision to not solve (yet again) the RI problem. First of all, we believed that building a product that exists only to solve problems in AWS’s  technology stack would be a business model built on a house of cards. Sure, plenty of companies have become very successful making it easier for customers to get the most out of their AWS investment, but I’ve never understood why those same companies stopped there and didn’t use that opportunity to go further. If you are going to build an enduring business you need to focus on solving problems in your customers systems, and leave optimizing AWS, to AWS.

The big problem with the cost optimization market is that cost optimization is just not a priority for engineering leaders. Finance? Maybe. Engineering? Usually not. Our customers, who are typically engineering leaders at growing SaaS companies, usually don’t think in terms of dollars saved. After all, a few thousand dollars shaved off an AWS bill pales in comparison to the cost of running a team of top engineers. Instead, they want to know how the investment they’ve made in AWS is impacting their company’s growth. This means, they want to know their cost per customer, feature, or transaction -- and whether these costs are scaling linearly with their growth or not. They want to be able to communicate that if their AWS costs went up, it’s because their productivity or scalability did too. In short, they need to optimize and understand their product costs, with regard to how their software is used and run. Software product managers everywhere know this as the cost of goods sold or COGS.

So, what replaces tradition cloud cost optimization?  We believe it’s application cost optimization. Unlike traditional cost optimization, application cost optimization requires a deep understanding of COGs and how engineering choices impact them—and engineering organizations can only achieve this if they are acutely aware that every line of code in the cloud is a buying decision. It’s not about shaving some cost of the top, it’s about allocating your cloud investment to fuel growth.  

Commanding the High Ground as a Cloud Software Company

Application Cost Optimization is what gives SaaS companies their strategic advantage in the market. When a cloud software engineering team develops a deep understanding of how their decisions and their code effect cost, that team develops a new superpower: the power to make a direct link between business objectives and engineering priorities. Suddenly, decisions made by the engineering team have a clear link to company revenue. Many of the born in the cloud companies like Amazon, Netflix, Twilio and Dropbox have understood this power for years and they have hoarded this secret. Netflix, long a contributor to open source, ended its support for its first cost management tool, ICE, and will likely never release its replacement, Picsou. And why would they? All of these companies know just as Jeff Bezos knew when he said: “Your margin is my opportunity”. Jeff Bezos knew that If you had control over your COGS, you would have an almost unstoppable competitive advantage.

At CloudZero, we think every SaaS vendor should have this superpower. That’s why CloudZero focuses on more than just cloud billing data. We look across all of your AWS services pulling in everything from CloudTrail to resource data, to billing and then correlate it all to understand what we can do for application cost optimization and automatically identify anomalies as you build. This gives you an incredibly granular understanding of what exactly makes up your spend—so you can measure by whatever metrics are important to your business.

We believe every penny you spend on AWS should be fuel, not waste, and we’re on a mission to help you make that happen

Learn More About CloudZero

CloudZero is the first real-time cloud cost platform designed specifically for engineering and DevOps teams.

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