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Managing gas bills has a lot in common with managing cloud spend. Here's how to manage your fuel spend, and, by extension, your cloud costs.
Managing gas bills has a lot in common with managing cloud spend. In the summer, our gas bill increased with our summer adventures. Sitting home with the kids out of school and the warm summer months was not an option.
Likewise, while discounts on gas certainly help, in reality they do not put much of a dent in the overall bill. The cheapest gallon of gas is still the one not used.
If you’re a modern cloud-native business, you can’t just stop using the cloud. It is estimated that companies waste roughly $120B a year on cloud spend.
While enterprise discount programs and reservations help reduce the bill and provide budget relief, in reality there are better ways to truly maximize the return on your cloud investment.
The public cloud is in many ways the fuel of modern business. In the cloud, as with driving, effective cost management means making informed decisions all along the lifecycle of your spend.
Not all trips are alike. For things like grocery runs, school drop-offs, and getting the kids to and from sports, the car we use only needs to accommodate a few people and possibly some backpacks. For these situations, we use our more fuel-efficient Toyota RAV4.
On the other hand, when my wife and I take our kids on our outdoor hiking, camping, beach, and skiing adventures, we need more space to accommodate our entire family and all our gear. So, we use a less fuel-efficient Toyota Sequoia.
Understanding our family situation and lifestyle allowed us to purchase the right vehicles in advance.
Cloud corollary: The same is true of the cloud infrastructure you buy. If you need to deliver real-time analytics to your entire organization on mission-critical things, you will want to use an appropriate database like Snowflake, Redshift, BigQuery, Databricks, etc.
If you're just exploring smaller data sets in an ad-hoc manner, something like AWS Athena will fit the job and deliver a much more palatable price tag. If you want a highly scalable document database you may decide to use MongoDB Atlas. All of them have different impacts on your cloud spend.
Gas may cost me $5.20 dollars per gallon (DPG) now, but that doesn’t mean I pay the same price every time I turn the key in the ignition. The price of gas is out of my control and over time will trend up.
All cars use gas at different rates of efficiency. Where I live, this efficiency rate is estimated by the commonly known miles per gallon (MPG). Our RAV4 gets 27 MPG city, 35 MPG highway —let’s call it an average of 30 MPG. Our Sequoia gets 13 MPG city, 17 MPG highway — 15 MPG average.
Divide MPG by DPG to get your miles-per-dollar (MPD). At $5.20 PPG, our 30 MPG RAV4 gets 5.77 MPD. One dollar takes us just under six miles. Our 15 MPG Sequoia, on the other hand, only gets 2.88 MPD — one dollar takes us less than half the distance of our RAV4. Using our Sequoia more than doubles our real gas price compared to our RAV4.
Cloud corollary: You can’t control how much oil companies charge for a gallon of gas. Likewise, you have no control over the underlying costs of the cloud service provider (which are showing signs of getting more expensive).
Cloud providers enable greater efficiencies and other benefits, but it puts the onus on companies to use cloud resources efficiently. This is why many companies see higher prices in the cloud when they just “lift and shift” their applications or see a cost spike when an engineer makes a coding decision without insights into the cost. How an application is developed to take advantage of public cloud resources matters.
Based on the above, it wouldn’t make any sense for us to drive the Sequoia unless we absolutely had to. If we used it for things like grocery runs or dropping our kids off at school, we’d be getting less than half of the MPD that we could have gotten with our RAV4.
On the other hand, our RAV4 couldn’t hold the gear for our family adventures. If we used the RAV4, then we’d be leaving some combination of beach chairs, toys, coolers, umbrellas, boogie boards, etc. at home or even worse not visiting the beach altogether. (Let’s be honest, visiting the beach with a family of five in the summer without any of those things is a non-starter.)
Cloud corollary: A key practice in healthy cloud cost management is “rightsizing”, i.e. using the right instance type for the right job. Don’t use an EC2 instance with 500 GB of RAM when all you need is 10. Free resources like CloudZero Advisor are particularly helpful in this area.
There are dozens of ways to maximize your fuel efficiency. Some easy ones include:
Cloud corollary: The key goal when architecting a system for the cloud should be to achieve a high “elasticity” quotient. In other words, maximizing variable (elastic) costs vs. fixed costs. The closer you can map your cloud service consumption to your needs, the more efficiently you operate.
Architects and engineers need to be mindful of how they architect their application or how the development of their code impacts costs. Making multiple API calls or data transfers could make logical sense, but understanding the cost impact of doing so might result in an alternative approach that delivers equal performance at a lower price point.
If we always assumed that automobiles could only run on gasoline, humans would never have invented hybrids or all-electric vehicles. This dramatically changed how we think about MPG and MPD. It is a very real possibility that in the future electric vehicles will be the default. While we have not yet made the inevitable decision to buy an electric car, we were impressed that we saw multiple electric Jeeps at the beach recently, so times are changing.
Cloud corollary: Many companies start by looking at the overall cloud bill or budget and focus their cloud cost management efforts on basic optimization — discounts, reservations, rightsizing, etc. That would be analogous to trying to reduce the total cost of ownership of the car without considering how you may be able to impact the number of miles you drive or your MPG.
Companies need to evolve their thinking away from the overall cloud bill and more to the return on investment and the correlation between cloud spend and the impact on the unit economics of their business.
Much like auto manufacturers look at metrics like MPG, companies need to understand their per-unit costs of their various business dimensions — products, features, customers, teams — to truly understand what optimizations have the biggest impact and to maximize their return on investment in the cloud.
My family is fortunate that paying an extra $20/week at the pump is not going to result in us canceling one of our weekend adventures. But it would be wrong to conclude that, since the difference is de minimis, our decisions are immaterial. For our three-car family, the net impact of these decisions is certainly in the thousands of dollars per year, and that eventually matters.
Now, what if we were a county police department, with hundreds of vehicles? Or Amazon, with a commitment to buy over 100,000 delivery vehicles? Waste left unchecked quickly becomes material, whether impacting the funds a local government has to invest in services like safety and education, or impacting corporate profits and valuations.
At scale, efficiency decisions make an enormous impact.
With modern markets reeling from post-COVID shocks and inflation, organizations are facing renewed pressure to create sustainable cost models and improve their unit economics. Cloud spend continues to be a top-three budgetary concern, and given cloud usage trends, will only become more severe in the years ahead.
Want to learn more about optimizing the return on investment for your cloud spend? Check out a tour of CloudZero or download our State of Cloud Cost Intelligence report.
Phil Pergola is CEO of CloudZero. Phil is an accomplished B2B software executive with experience driving significant revenue growth and positive business outcomes across the entire customer lifecycle — acquisition, onboarding, adoption, expansion, and retention.
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.