CLOUDFLATION: THE BUSINESS KILLER
The rise in cloud computing prices has become a global threat. The cost of cloud computing has been rising recently after years of price declines. The dramatic increase in cloud costs is known as "CloudFlation." Due to supply chain disruptions, there were fewer servers available in the cloud, which raised pricing. This article explores the numerous aspects of "CloudFlation," the main causes of supply-chain disruptions that result in increase in cloud costs, and the future prospects of a company.
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The cost-of-living issue, rising energy costs, and skyrocketing inflation are all topics of negative news in the media. Without stories on the disastrous effects of rising expenses on both people and businesses, news headlines would be incomplete.
It appears that inflation will continue for some time. The plague of inflation has suddenly surprised the world economies as they are only starting to recover from the COVID 19 wave and squint into the sunshine.
But how will the cost of using the cloud, an area of exponential development that has heretofore been unchecked, be affected by inflation?
Since many years ago, key suppliers have been working together to lower the cost of adoption by lowering the cost of using the cloud. If anything, the global pandemic turned out to be a benefit for business asemployees were sent home, propelling them in droves towards total "online-ness." The sheer cost of scaling up conventional systems and infrastructure to accommodate the new digitised business model was a key mitigating element of the impact from shifting to the cloud, and AWS, GCP, and Azure made utilising their services appealing.
Sadly, a fresh round of catastrophes threatens this brave newworld, so cloud bliss might not last long. While moving to the cloud will continue to have advantages, doing so will unavoidably become more expensive in these times of inflation. The increase in the price of cloud services that results from supply-side inflation, which limits the big platform providers' ability to be lenient and gives them more justification to raise prices, is what we refer to as "CloudFlation".
A number of major price hikes have already been covertly implemented by Google Cloud Platform (GCP) across a number of storage platforms. Given the continued global spread of inflation rates and the ongoing technological deficiencies in the sector, it becomes sense to assume that this will also apply to price computation. For instance, the cost of accessing the public cloud appears to be rising incorrectly given the current shortage of cutting-edge semiconductors.
Many cloud-first companies took price reductions and cloud credits for granted, despite the fact that many of us did not anticipate low cloud prices to last indefinitely. Maybe we all thought that the cloud price wars would continue and drive providers to cut prices? Given that AWS has reduced its costs at least 107 times since its introduction in 2006, this assumption may not be unwarranted. Regular price reductions and substantial cloud credit freebies were industry norms. The 'big three' were expected to always be generous due to healthy competition because they profited from economies of scale.
So, what does this mean for the big suppliers' margins and their relationship to current energy prices? The largest cloud providers have always earned enormous profit margins. The parent company of Google, Alphabet, recorded a significant operating margin of 29.7% in the first quarter of 2021. Microsoft made even more stunning news when they revealed a 40.9% advantage for the same time period.
We may expect that since the cloud uses a significant quantity of power, the cost of providing will soon rise in accordance with the rest of the retail market. Businesses shouldn't anticipate more cost reductions and, if anything, a shift in the opposite way, given the existing consequences of supply chain issues and escalating inflation.
Do not hold your breath if you are waiting for the subsequent wave of cost reductions to arrive before moving to the cloud. Because of economies of scale and greatly enhanced technological architecture, vendors were able to offer competitive prices at the beginning of the cloud era. Given the state of the market, it appears that these levels are nearly saturated and can no longer be depended upon to provide astounding cost savings. For instance, each cloud provider was able to take use of its investments in sharable resources and infrastructure, such as huge data centres, as their client bases increased geometrically to millions and millions of users. As it seems that the hyperscale companies have peaked and are now, like the rest of us, vulnerable to current market conditions, these efficiency gains are now falling. Cloud providers are enormous power consumers, just like other significant industrial businesses, and will soon experience the effects of rising energy costs.
If you need evidence that AWS, GCP, and Azure are susceptible to the same market circumstances as everyone else, look no farther than Google, which has just passed on significant pricing increases to its customers. As aresult, AWS is rumoured to have cut in half the amount of credit granted FOC to charity utilising IT services, which might signal a desire for more cost cuts.
Is there anything we can do to prevent the fifth horseman of the apocalypse from appearing before we sink into the mire of despair? What steps can your company take to safeguard its survival?
Any capable management team may assure their survival by first becoming ready for the upcoming cloud increases. Simply create a plan. It may sound easy, but a basic workaround like booking cloud instances while they're still affordable is a fantastic place to start. While reservations are still available, it makes sense to "fix" for a one- to three-year term. Businesses of all sizes have suffered from making inaccurate predictions of their cloud utilisation (including many with huge in-house teams dedicated to cost optimisation). Pinterest, a recent advance payment AWS user, was recently forced to purchase more capacity at a greater cost after underestimating the length of time customers would spend using their service. As a result, Pinterest spent $20 million more on AWS that year, totalling around $190 million, than it had anticipated. Another frequent occurrence is getting the degree of over-provisioning correct, which when not done results in a significant underspend where committed cloud spend is frequently 20% lower than actual spends. Therefore, the second stage is to put a lot of work into more precisely forecasting consumption and spending to prevent unpleasant surprises. The third and possibly most apparent strategy is for organisations to make the most use of their current resources by utilising automated tools to complete the task. Companies should be able to predict the precise types and quantities of all their cloud resources. They ought to be able to evaluate the entire multi-cloud estate they have in order to scale and decommission unused servers and storage. In order to prevent waste, organisations should be able to scale their resources up or down. With the appropriate approach, cloud wastage may be easily prevented. It is a quiet killer for many organisations.
Automation is clearly the way to go, especially for organisations with limited resources and tight margins. A well-planned strategy will enable the selection of the most cost-effective cloud resources for the task at hand, allowing for scalability for top performance and less over-provisioning.
Will an automated strategy provide a cure-all for the impending "CloudFlation" storm? It won't likely work all by itself, but it will help keep the wolf away from the door while you implement a workable sustainability strategy and cast a much-needed bright light into the darkness... even before wolf discovers another way within.
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