Why Your Cloud Bill Is So High - Part 1

Published on

25 Nov 24

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Data crowns the winners in most industries. At both the operational and strategic level nearly every company is looking to differentiate by leveraging data.

Ride data powers better delivery estimates for Uber Eats; Florida weather data is driving home insurance premiums through the roof; and store traffic data determines Burberry’s dynamic inventory management system.

The sheer volumes of data generated, stored, and analyzed in order to compete now test even the most advanced engineering teams.

Worldwide Annual Data Generation Forecast, in Zettabytes

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So much so that they might just be forgetting one thing - the bill.

While data drives your revenue growth, its management is likely your biggest tech line item. And it's likely much higher than it should be. In this series we’ll explore how to anticipate and mitigate rising costs of data management so you can actually translate data into benefits to your bottom line.

The Move To The Cloud

The shift from on-premise infrastructure to cloud computing has been one of the defining business trends of the past decade. Between 2010 and 2020 the global cloud computing market grew a remarkable 635%, from $24.6bn to $156.4bn. By 2027 it could surpass $1 trillion. Meanwhile, the proportion of companies using on-premise systems has halved and only 5% consider switching back from cloud to on-premise. Why?

Why Companies Prefer Cloud Computing

On-prem computing involves managing physical servers in-house, demanding significant maintenance, upfront CapEx, and dedicated - and expensive - IT expertise. In contrast, cloud computing is managed by third-party experts and has three core benefits.

1. Compute as OpEx is more cost-efficient

Cloud computing offers subscription and usage-based pricing models that allow companies to pay for the compute they need when they need it. This shift from a fixed CapEx to a variable OpEx model should result in net cost savings, with finance execs reporting an average post-migration revenue and profit increase of 15% and 4%, respectively.

These savings are due to both the economies of scale benefiting cloud providers, and reduced private spend on idle capacity in on-premise servers. When determining on-premise investments, companies have to consider current usage and projected growth of compute demand. This often forces the over-provisioning of resources and therefore unused paid capacity. With cloud, minimal spend on idle capacity reduces the total cost of ownership (TCO) by up to 40%, freeing the IT budget for other strategic initiatives.

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2. Auto-scaling brings flexibility and scalability

Auto-scaling is the automated process of adjusting cloud resources to demand. This is beneficial if your business is growing fast or has seasonal demand. E-commerce platforms, for example, face significant traffic and workload variability during sales and holidays.

Scaling infrastructure in tandem with workloads is not only cost-efficient, but also more operationally efficient. Without the constraints of fixed capacity and old contracts, companies can scale resources without touching a button. Teams no longer need to report back to IT every time they want to change or grow their tech stack, reducing time to market by a third.‍

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3. Data centers are hard to manage

Managing physical servers is difficult. Powering and cooling data centers is expensive. Recruiting and upskilling an adequate team is time-consuming.

Running a data center is not your team’s core competency, nor should it be. They could be doing so much more than server setup, parts replacement, admin requests and incident handling. The clearest benefit of the cloud is outsourcing this to hyper-scalers and their thousands of dedicated systems engineers.

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Over the past decade these factors have convinced 94% of enterprise companies to adopt cloud computing, with on-prem computing relegated to legacy systems and outdated security mandates.

So if cloud computing is so great, why do 61% of businesses using it fail to meet their cost goals?

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Frequently Asked Questions

Cloud Computing is the delivery of on-demand computing services—including servers, storage, databases, networking, and software—over the internet. It allows organizations to shift from fixed capital expenditures to variable operational expenses, paying only for the resources they use. Cloud computing also eliminates the need to manage physical hardware, enabling greater scalability and operational flexibility.

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On-Premise Infrastructure refers to the traditional model of computing where a company owns, operates, and maintains physical servers and data centers in-house. This requires significant upfront investment in hardware (CapEx) and ongoing expenses for staffing, maintenance, cooling, and power. It is increasingly being replaced by cloud computing due to its lack of scalability and higher total cost of ownership.

Data Center Management involves maintaining physical servers, handling hardware failures, ensuring power and cooling, and staffing skilled engineers. For most companies, this is not a core competency and diverts resources from strategic priorities. Cloud computing outsources this complexity to hyper-scale providers, allowing internal teams to focus on business-critical initiatives rather than infrastructure maintenance.

Auto-Scaling is a cloud computing feature that automatically adjusts computing resources based on real-time demand. It enables companies to scale their infrastructure up during high traffic periods and scale down during low usage times without manual intervention. This ensures both cost efficiency and operational resilience, especially for businesses with variable workloads.

Total Cost of Ownership (TCO) refers to the comprehensive cost of acquiring, operating, and maintaining IT infrastructure. In cloud computing, TCO is often lower because companies avoid the capital expenses of purchasing hardware and the operational burdens of running data centers. Cloud models reduce idle capacity spending and free up IT budgets for strategic initiatives, cutting TCO by up to 40%.