The COVID-19 pandemic forced many companies to speed up their digital transformation and embrace cloud computing. According to a recent Deloitte “Future of the Cloud” survey of 500 senior cloud decision-makers in the U.S., 90% of respondents said that they believe cloud technology is the cornerstone of their digital strategy and “vital” to driving revenue and maintaining a strong position in the market.
But at the same time, many enterprises are running into unexpectedly high cloud costs. A February survey on the “State of Kubernetes 2023,” conducted by Pepperdata, queried 800 C-level executives and senior IT professionals and found that while enterprises overwhelmingly said Kubernetes container technology was their preferred choice for deploying workloads in the cloud, the majority also said that the speed and ease of deployment resulted in unexpected infrastructure costs.
In fact, more than one-third of the businesses queried in the Pepperdata survey said that they have cloud budget overruns of up to 40%.
Many of these unexpected costs can be blamed on the complexity of cloud pricing models. According to Prakesh Sagem, founder of Tantra Analyst, the reason cloud pricing is so cumbersome is because companies have wildly different needs. For example, some require lots of memory or processing fire power while others require a high level of security. Costs also vary depending upon the type of service level agreement (SLA) that a company may require.
“There is a huge variance in all the dimensions,” Sagem said. He added that because many cloud solution providers bundle the cost of cloud services with their software services it makes it particularly difficult for enterprises to compare pricing among the various cloud competitors.
The rise of FinOps
The complexity and difficulty surrounding cloud pricing has created an entirely new set of companies with the sole purpose of helping customers manage and optimize their cloud costs. These companies, called FinOps, specialize in financial management of cloud costs and use technologies like artificial intelligence (AI) to help enterprises reduce their cloud spending.
Many early FinOps firms were acquired by cloud providers over the past few years. For example, Microsoft purchased cloud FinOps company Cloudyn in 2017, VMware purchased CloudHealth Technologies in 2018 and more recently, Intel purchased Granulate in 2022.
While many FinOps firms are being swallowed by larger firms, some cloud cost management startups are attracting investment dollars. CloudZero, a cloud cost management startup that says its platform can help engineering teams see the impact their software development decisions have on their cloud costs, raised $32 million in Series B funding last month. The funding, which was led by Innovius Capital and Threshold Ventures, brings the company’s total funding to more than $52 million. CloudZero said it plans to use the additional funding to expand its platform features and add new functionality.
Interestingly, CloudZero CEO Phil Pergola said that the biggest challenge is not necessarily identifying areas where companies can cut costs but getting engineers to take action and make changes.
Of course, as senior executives take a closer look at their balance sheets and the impact of recent moves to digitally transform their businesses, the pressure will be on engineering and IT departments to not only keep a closer eye on their cloud spending but also to rein in some of those costs.