Cloud Costs May Bankrupt You. Here's How to Fight Back.
Kaveh Khorram

Kaveh Khorram

April 7, 2022 · 5 min read

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Announced, a small mobile app that lets users make local announcements, was hit with a $72,000 bill after testing Google Cloud Platform. As CEO Sudeep Chauhan wrote: "As a bootstrapped company, there was no way for us to come up with $72K."

The startup is just one of many that have been caught off-guard by the high cost of using cloud services. The problem is exacerbated by the fact that there is no easy way to predict how much a cloud service will cost. This can make it very difficult for startups and small businesses to manage their budget and cash flow.

To make matters worse, the pricing of cloud services is often complex and opaque. There is no standardization, so it can be hard to compare prices across providers. This makes it difficult to find the best deal and to negotiate for lower prices.

The Cloud Exodus

The cloud is shockingly expensive, and it’s only getting more so.

The cloud is not what it used to be. A few years ago, the cloud was seen as a panacea for all ills, a way to get unlimited computing power and storage for a low monthly fee. But the honeymoon is over.

Now, the cloud is seen as a necessary evil, a place to park data and applications that are too intensive to run on-premises. The major cloud providers—AWS, Azure, and Google Cloud—have all raised prices many times in recent years, even going so far as to announce doubling costs.

As noted in a Andreesseen Horowitz analysis, software companies commonly spend 75 to 80% of COR (cost of revenue) on the cloud, which amounts to an eye-watering $500 billion markdown on the market capitalizations of public cloud companies. The high cost of the cloud has led to an exodus of sorts, as companies move data and applications back on-premises or co-location solutions.

Ironically, the popular “cloud storage” provider Dropbox left the cloud, saving $75 million. They’re not alone, with nearly three-quarters of IT decision-makers surveyed migrating applications out of the public cloud.

Will the Cloud Bankrupt You?

Cloud costs have gotten so out of control that they’re now a top concern for business executives.

Why are cloud costs so high? There are many factors, but the biggest one is simple: the major cloud providers have an oligopoly on the market. They can charge whatever they want, and they often do.

The other factor is that the cloud has become increasingly complex. As more businesses move to the cloud, they bring with them a host of new applications and data sets. This complexity adds to the cost of operating in the cloud.

Intelligently managing usage in real-time becomes a task of herculean proportions and the bill comes as a rude shock every month.

A recent Forbes article asks the question on everyone's mind: "Will Cloud Complexity Bankrupt Your Company?" The answer, unfortunately, is that cloud costs "may lead some companies to financial ruin."

The cloud has become a financial black hole for many companies, and it’s only getting worse. Unless something changes, the high cost of the cloud will bankrupt businesses. Even forgetting the extreme case of Chapter 11, the cloud is becoming a major drain on cash flow that is preventing companies from investing in other areas of their business.

Do you have a plan to deal with the high cost of the cloud? If not, you need to develop one fast. The longer you wait, the more expensive the cloud will become, and the greater the risk to your business.

How to Cut Cloud Costs In Half

The good news is that there are ways to cut your cloud costs, sometimes by 50% or more.

Usage.AI has saved businesses over $10 million by intelligently managing their AWS EC2 usage. UsageAI achieves this by purchasing the most lucrative deals on the EC2 Reserved Instance Marketplace (3-year no-upfront RIs). This allows them to reactively buy and sell reservations in real-time as business needs change, automatically.

With Usage.AI, you don’t need to worry about forecasting your EC2 needs. The company takes care of everything, so you can focus on running your business.

If you’re looking for a way to reduce your cloud costs, Usage.AI is definitely worth checking out.

Achieving Greater Agility and Innovation

Preventing financial ruin is not the only reason to reduce your cloud costs. The high cost of the cloud is also preventing companies from being agile.

The cloud has made it possible for companies to be more agile, but the high cost is often a barrier to entry. In many cases, the cost of the cloud is simply too high for companies to justify using it.

As the cost of the cloud continues to rise, it will become increasingly difficult for companies to be agile. They will be forced to choose between being fiscally responsible and being able to move quickly. In most cases, they will choose the latter, which will limit their ability to compete in the marketplace.

Rather than forego the cloud altogether, companies need to find ways to reduce their cloud costs. This will enable them to be more agile and to better compete in today’s marketplace.

study by Accenture found that those companies that have adopted cloud are seeing benefits such as:

  • Greater customer satisfaction
  • Reduced time to market
  • The ability to develop new products and services
  • Increased market share
  • The ability to adopt new technology more easily (such as IoT and AI)
  • Improved logical and analytical capabilities

The (Affordable) Cloud Advantage

Consider the rise of machine learning and AI. These technologies are revolutionizing the way businesses operate and compete. They’re also very resource-intensive, which means they’re often too expensive to run on-premises.

The cloud provides the perfect solution for companies that want to use these technologies. It gives them the ability to scale up or down as needed, without having to make a significant upfront investment.

But the high ongoing cost of the cloud is preventing many companies from taking advantage of these technologies. They simply can’t justify the recurring expenses, which puts them at a competitive disadvantage. As VentureBeat reports, training a state-of-the-art natural language model in the public cloud can cost upwards of $300,000.

For many companies, this is simply not an option. Other estimates suggest that training OpenAI's GPT-3, or the Generative Pre-trained Transformer 3, would cost a dumbfounding $12 million.

Without those funds at their disposal, SMEs are forced to use the models created by the giants. This lack of innovation hampers their ability to compete with larger businesses. Reducing your cloud costs is essential if you want to stay competitive in today’s marketplace. The cloud provides a number of advantages, but only if you can keep your costs under control.

The Bottom Line

The cloud has become essential for many businesses, but the high cost is a major barrier to entry. It’s not just machine learning and AI that are being held back by the cost of the cloud. New and innovative companies often can’t afford to get started. They don’t have the capital to invest in the infrastructure they need to succeed.

This lack of access to capital is a major barrier to entry. It’s one of the reasons why the tech industry is so dominated by a handful of companies. They were able to get started because they had the money to do so.

If we want to see more innovation in the tech industry, we need to make the cloud more accessible to small businesses and startups. This means making it more affordable. Usage.AI is one way to achieve this, by intelligently managing your AWS EC2 usage.

Try Usage.AI’s savings calculator to see just how much your company could be overspending on the cloud. Simply select your EC2 instance type, the region, and the quantity of instances.


The Author

Kaveh KhorramCEO, Usage AI
Kaveh Khorram
CEO, Usage AI

Kaveh is the Founder and CEO of www.usage.ai

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