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Airbnb, Netflix, and Twitter have made headlines for their cost-cutting tactics. Here's what they're doing well — and where they could improve.
Amid the first bear market in over a decade, the world’s largest companies are facing intense pressure to cut back.
Layoffs have made headlines, but cutting workforce is not a silver-bullet solution to surviving in a down market. True, companies tend to spend the most on personnel, but using layoffs as a first line of recession defense has myriad negative consequences for survivors, including reduced job satisfaction, reduced organizational commitment, and declining job performance.
Moreover, firing people doesn’t address the underlying issue, which is that companies who have long viewed top-line growth as a North Star objective are now being judged by profitability. To fulfill profitability goals and prepare for healthier growth, companies have begun scrutinizing their cloud spend.
Regular readers of the CloudZero blog (and with titles like “The Quest For Sunken Treasure” and “How Drift Improved Their COGS By $2.4 Million,” who wouldn’t be) know that we’ve long been proponents of cloud cost efficiency. Reducing costs is a good start, but cost intelligence is the true goal: Cutting costs is a good start, but healthy unit economics is the holy grail.
Particularly in a strained market, the companies most likely to survive are the ones with the soundest business fundamentals. With cloud spend expected to approach $500 billion in 2022 and executives estimating that 30% of cloud spend is wasted, cloud costs are compromising many companies’ business fundamentals.
At last, the world is beginning to think like us.
… To some extent. We’ve read over reports from some of the world’s largest companies — Airbnb, Netflix, and Twitter — and we’ve got some thoughts on their cost-cutting tactics.
We’ve said it before, we’ll say it again: There’s no crying in cloud costs.
The Wall Street Journal threw Airbnb some kudos earlier this month for keeping ahead of the cloud cost curve. The home-sharing company began looking closely at their cloud costs back in 2019, and in 2020, found more than $60 million in savings.
How did they do it? A few key ways:
Our rating: Pretty, pretty, pretty good!
The most recent articles don’t call it out, but Airbnb has written in the past about how they designed their cost management system to do a lot of the good stuff we see our most successful customers do.
“Our approach to consumption attribution was to give the teams the necessary information to make tradeoffs between cost and other business drivers to maintain their spend within a certain growth threshold,” reads an Airbnb Medium article published April 2021.
“With visibility into cost drivers, we incentivize engineers to identify architectural design changes to reduce costs, and also to identify potential cost headwinds.
Pretty advanced. On the other hand, getting a flat network out of AWS is a coup — one that won’t be possible for smaller spenders. So, not a strategy companies outside the FAANG-osphere will be able to implement.
To beat the unit economics drum, the only way we could see Airbnb improving would be to focus on cloud unit metrics, like cost per reservation.
For their early and creative adoption of AWS, Netflix earned the title “AWS Innovator,” bestowed by Amazon itself.
Deservedly so: Netflix was one of the first companies to realize the full potential of the cloud, offering premium entertainment to anyone with an internet connection at a price that put movie theater popcorn to shame.
But here in market-challenged 2022, Netflix has found itself losing subscribers for the first time in more than 10 years — not to mention about half of its share price. Thanks to another report from WSJ, we have some insights into how they’re cutting back.
Our rating: Not bad, not great.
Assessing the cost of storing data in specific regions is a fairly sophisticated step (one we recently helped a customer make). But chances are, Netflix can do it just by looking at simple data like how many streams content gets in certain geographic regions.
More impressive would be a solution that applies to the entire content delivery process.
Granted, we don’t know all the particulars, but we can assume that the playback of a given video involves retrieving it from storage, streaming it through a server for transcoding (adapting the file type and size to the playback device), and delivering the resulting file via the internet.
Ideally, Netflix would be able to refine not only the copies they store, but this whole delivery pipeline to ensure that their average customer is profitable.
So, just to ignore all the utter insanity that has been going on in Muskville of late, Twitter’s new head honcho took precisely one week after finalizing his Twitter acquisition to order a $1 billion reduction in IT spending.
Again, we don’t know very much about how he plans on doing that — but chances are, neither does Twitter. A Reuters article outlined only one semi-concrete recommendation:
Our rating: Um … good luck with that.
While not being privy to Twitter’s internal discussions, the $1 billion figure seems arbitrary. And, as Rogers said, “Simply cutting [extra server space] is … probably not the smartest or most targeted plan.”
Because experts suggest that making such a radical change to Twitter’s underlying engines could compromise the site’s function, especially during high-traffic periods. One anonymous source described the cuts to Reuters as “delusional.” And based on the other steps Musk has ordered to improve Twitter’s financials, we’re … skeptical.
More targeted would be an initiative around assessing — and perhaps decreasing — the cost per 1,000 tweets, or quantifying the ROI on the paid checkmark feature.
If general efficiency principles aren’t enough to make companies take a closer look at their cloud spend habits, a recession seems to be. Notwithstanding Elon Musk’s billion-dollar mandate, it’s impressive to see growth-oriented companies taking big steps in the direction of cloud cost maturity.
But still, most of these solutions center around resource utilization and efficiency. Acolytes of the FinOps Foundation’s FinOps Capabilities will recognize this as merely one of a much longer list of functions, which go beyond periodic cost reduction exercises.
We didn’t just quote Stevie Nicks because Rumours is arguably the best album of 1977. It’s because if recession-spurred cost reduction is as good as cost management gets, companies will fail to break out of the vicious cycle of cloud cost billing.
But the road to efficient innovation passes through many higher-order FinOps objectives. We’re flattered to see our reason for being taking centerstage, and we’re ready to be part of its star turn.
CloudZero organizes cloud spend better than anyone else. Click here to read more about how we do what we do. If you like what you see, schedule a platform demo.
Dustin Lowman, a FinOps certified practitioner, takes no small pleasure in applying his English major’s sensibility to the SaaS world. Dustin also writes, performs, and records original music, and has never met a cardigan he didn’t like.
CloudZero is the only solution that enables you to allocate 100% of your spend in hours — so you can align everyone around cost dimensions that matter to your business.