The cloud — and more specifically the as-a-service-ification of everything in it — promised an end to wasted spend. Unlike in ye olden days of physical servers, the cloud would eliminate overprovisioned resources. With Infrastructure as a Service, you’d select an outcome and pay only for the resources you used to achieve it.
It was fantastic news for businesses of all sizes. Instead of making a guess at what you’ll need and being stuck with it for the next year or several, you’d have the flexibility to change your compute spend as your needs changed.
Unfortunately, the news was not so exciting for the cloud providers. They would now be the ones taking the risk, paying for cloud resources that may sit unused if the customer’s needs go down. In the world of infrastructure, flexibility has become table stakes. If a provider can’t offer it, companies switch to one who will. That attitude hasn’t extended quite as quickly to the world of Software as a Service.
Cloud adoption promised flexibility, but in SaaS, cloud resources often sit idle
Where infrastructure is (ideally) not something most of the organization thinks about, pretty much everyone in an organization uses software, pretty much every day. If it’s slow, or maxes out on capacity, it’s going to interfere not just with productivity but with morale.
As such, it’s easy to convince a company to overcommit — better that than underserved. But to maximize savings, most SaaS solutions push customers to lock in their plan for a year, sometimes longer. To get the highest discount, companies may find themselves paying for a premium-tier solution they just don’t need, with no way to adjust for months.
The result is widespread underutilization. This is especially acute for midsized businesses. They no longer qualify for the startup and small-business plans that would meet most of their needs, and so they agree to the terms of an enterprise solution that may be far beyond what they’ll actually use.
29% of midsized businesses say they’re underutilizing their SaaS resources, with somewhere between one-quarter and half of their cloud computing power wasted, per Gartner research.
Bringing the consumption-based cloud cost management techniques of infrastructure to public cloud services
In SaaS, you’re often stuck committing to — and paying for — 250 seats when you haven’t yet hired the full sales staff to use them, for example. Infrastructure as a service plays some of the same games, offering up better pricing for longer commitments, but almost all are now allowing some version of flexibility. If your needs change, you can just move cloud resources from one project to another as needed. In SaaS, 250 seats stays 250 seats.
Still, some of the well-documented cloud cost control strategies that work for infrastructure can be applied to SaaS. It starts with being clear at the very beginning about your strategy, and what role cloud cost optimization will play in it.
While we wait for true pay-as-you-go SaaS contracts that make financial sense, your best bet is to accurately forecast your usage. Some of this will be licenses, and where that correlates to staffing, you’re likely to have a strong sense of what you’ll need. But make sure to take a deeper look at the details of the contract. Are you getting all the features that you need, or will you be stuck paying ad-hoc for critical functionality? And just as importantly, are there any features you do not need that come with the plan? Bundles and packages make buying easier, but they can also include a lot of software bloat that increases wasted spending.
Once you’ve committed, monitor your cloud usage. This part can be painful. If you’re locked into a multi-year agreement, the last thing you want to do is go looking for the mistakes you made at the negotiating table. Unfortunately, that’s the best way to learn. If the waste is particularly egregious, it might also make a case for forcing the SaaS provider to adjust or risk losing the account.
Why midsized businesses have the upper hand when it comes to wasted cloud spend
As you start to get a handle on your real usage, you’ll be better equipped to take advantage of the few SaaS providers who are offering some version of consumption-based pricing. With a better understanding of what you use, and who uses it, you can determine if the best deal lies with a longer commitment or a pay-as-you-go model.
This is where the mid-sized organization really shines. Large enterprises are often too unwieldy to track down all of their IT spending, let alone centralize it. At a mid-sized organization, CIOs have the right combination of visibility and authority to accurately manage cloud costs.
Now it’s just a matter of doing it.
If you want help assessing your cloud usage and reducing wasted spend, contact us.