CloudFlation: The Business Killer
What is CloudFlation. Events that led to CloudFlation. And ways to cope with the situation.
Hari Sri Rameasvar R
Unstop Igniters Glim
CloudFlation, A new buzzword for Internet service-based companies that have been gaining traction for the past 2months. It’s a portmanteau of the words cloud and inflation. It is the rise in cloud services costs offered by various cloud vendors due to inflation in the economy.
The rise in costs affects businesses across multiple sectors. During the pandemic, the world had seen an inevitable shift towards an online business environment out of necessity. Before that, vendors almost always offered cloud services at discounted prices. To cite an example, AWS has dropped prices around 107 times since launching its cloud computing platform in 2006. But now the situation is different. Google has silently increased prices for most of its cloud services. Most other cloud vendors have freemium pricing strategies for their cloud storage service and had pre-booking discounts for the other companies. The offers that once allowed the industry to grow are laid to rest and the prices are hiked.
A multitude of reasons is being discussed for the sudden change in landscape. The first of them is inflation. The world economy saw inflation during the Russian invasion of Ukraine. Sanctions were placed on Russia by major western powers which ultimately hit them more than it hit Russia itself. With the sanctions in place, the countries were majorly hit by their dependence on Russia for their energy needs. With the rise in prices of oil, and gas along with electricity the cost to maintain cloud computing servers increased. With the market saturated, the vendors now have the upper hand in demanding the prices for their service and have started passing on the increase in operating costs to their customers.
The second cause for CloudFlation is the supply chain crisis that occurred during the pandemic. Supply chain issues are seriously affecting various industries in multiple sectors quite badly. The rise hit the textile industry in prices of dying chemicals and cotton, the manufacturing sector was suffering from the unavailability of steel from China, and the construction industry couldn’t keep up with the demand due to that affected an inadequate lumber stockpile. But mainly the supply chain crisis that affected everyone was the global semiconductor shortage. The automotive industry resorted to using older versions of infotainment systems due to the unavailability of newer chips. Automotive giant, BMW decided to not add touchscreen infotainment in a few of their models due to chip shortage.
The servers that facilitate the cloud, need to be maintained routinely. The servers need to be upgraded every cycle to retain or improve speed and efficiency. This hit the cloud computing vendors the hardest. The cost incurred to upgrade and maintain their systems increased exponentially with the substantial increase in userbase, driven by the changing market influenced by the pandemic, added with the supply chain crisis pushed the companies to increase prices to improve their marginal revenues.
The third reason is a combination of two interconnected factors namely innovation and fabrication. Microprocessors have come a long way since their inception. The size of transistors within the microprocessor defines its power and efficiency of it. In 2001, the size of the transistor was 103nm in a processor. Now it is either 7nm or 5nm based on the device it is on. The lower the size higher the efficiency, and the less power consumes to operate. The energy crisis previously mentioned has taken a toll on the electricity supply thereby increasing its price. In times like these, it is necessary to innovate further and develop even more efficient processors to combat the energy crisis. But the supply chain crisis has stifled innovation as it forced manufacturers to use an older generation of chips in their products thereby constraining the necessity for innovation. It is a multi-pronged attack that led to unprecedented CloudFlation.
So, How does it affect businesses? Almost all internet service-based businesses depend on cloud providers for storage of data, computational activities and maintenance of servers. So this price hike affects everyone from industry giants such as eBay, Netflix, Apple and General Electric to small-scale industries and start-ups alike. All players affected by CloudFlation will take steps to minimise their operating costs by passing the cost on to their consumers.
The expert analysis of the situation is that the prices won’t be back to normal, the new prices are the new normal. The market for cloud services is almost at the saturation level. The potential to grow any further is marginal at best. What was once the blue ocean has become a red ocean as the field has four major players providing services to businesses and industries of varied scale and scope, who have all become dependent on these services for their regular operations.
The way forward is to adapt to the change in the field. Multiple field analysts and experts are sharing their opinion on the same, giving out generalised game plans that the players can follow.
The solution of note is planning. Sounds simple enough but it involves accurate predictions and forecasts. If a company can predict accurately the amount of cloud network it needs it can negotiate and prepay for the same to its vendor. Buying additional resources at a later date due to inaccurate forecasts could lead to higher charges which could cut through the operating margins of the company. One recent example that comes to mind is the case of Pinterest. They had to overspend by about 20 million more than their estimated value on cloud services because they underestimated their cloud needs.
The other solution is to control and organize the existing resources. As obvious as it may sound, most companies tend to overlook this part as till now they received massive discounts for cloud services from their vendors. They didn’t need to manage their cloud allocations. But in this situation, the companies must make efforts to get take inventories of the cloud resources, calculate the exact amount required and decommission servers that are not being used.
CloudFlation may act as a silent killer for many organisations and it is up to them to manage resources to survive. Planning, adequate forecasts, negotiating the right prices, effective utilisation and control will save the companies from inflated cloud pricing.
Hari Sri Rameasvar R
Unstop Igniters Glim