SaaS cost management companies help control expenses

Hello and welcome to Protocol Enterprise! Today: how SaaS companies exploit the inability of newcomers in the cloud to control their spending, Microsoft and Google Cloud report revenue, and a new group at Microsoft will target lagging clouds.

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It’s Subscription Week at Protocol, and on Monday CAST AI decided to participate. According to new research from the company, over-provisioning of cloud resources costs newcomers in the cloud about three times more than they should spend.

We lowered your bill! Here is our invoice.

The growth of the cloud made companies faster, faster and smoother. But it created a new problem: Usage-based billing models from cloud providers such as Amazon AWS, Microsoft Azure and Google Cloud Platform have made it easier than ever for companies to lose control of computer costs.

There is an underlying assumption that moving from local servers to the cloud will help companies save money, said ServiceNow IT Manager German Bertot. But that is not always the case.

  • “The promise is there, and it’s fantastic. But companies are having a hard time realizing these savings,” he says.
  • “People are very surprised at how much money cloud-based computing costs [them] over traditional computer use, ”says David Linthicum, Deloitte’s cloud strategy leader.
  • While part of it is just the price of access to computing power, the majority of it is due to inefficient spending management, he said.

That’s why SaaS companies like Flexera, Apptio and ServiceNow help companies reduce their cloud subscription costs – as long as you subscribe to their services, which of course are not free.

The reason why cloud costs can swell so quickly is that managing expenses associated with computing power is much more complicated in the cloud than when companies bought and managed their own servers.

  • With data centers, it was common for CIOs to only buy new technology every few years, says Flexera Senior Director Brian Adler. In response, IT staff would ask for as many resources as they could get, especially since most companies provided more computing power than they needed at the time.
  • Because it took so long to buy and distribute infrastructure resources when running local data centers, this was fairly common behavior, said Forrester senior analyst Tracy Woo. The difference with the cloud is that provisioning “is something you can claim and get online in minutes.”
  • But when many customers first moved from local operations to the cloud, they often took with them the old data center mentality.
  • But with the cloud, “I do not buy the top, I can rent the top. So it’s a new behavior that people need to learn,” says Adler.

The other aspect that makes it difficult to manage cloud costs is that IT spending is not as centralized as it used to be.

  • First, getting started with the cloud makes it much easier to subscribe, distribute, and then collect large bills.
  • “You do not have to send out a purchase order to your hardware vendor, take them in, pay for them in advance, get the hardware into your data center, install it, and so on,” Bertot said.
  • Even getting an insight into where the expenses come from can be a challenge, as a company can have hundreds of engineers who use resources but only get one invoice.
  • And those bills are so complicated that no one can look at all that information and determine if they are being overcharged, says Adler, who has seen Flexera customers with 12 million lines of information in a single monthly bill.

The best way to manage cloud spending can be to spend money on spending control tools, Although it may seem counterintuitive, this is why the major cloud providers AWS, Azure and Google as well as SaaS companies such as Flexera, Apptio and ServiceNow all offer services to help companies reduce their cloud costs.

Although many of these services require you to purchase another subscription, the savings, according to industry practitioners and analysts, can be huge.

  • In the case of the SaaS application, an understanding of which users use licenses and how much they use can help determine which level of subscription to purchase or to whom to grant licenses.
  • If a user consumes a license but does not use it, “are there ways for us to analyze usage patterns and suggest a lower-level subscription … and in the process achieve savings?” in Bertot.
  • Other times, savings can come from streamlining SaaS applications. “How many different communication platforms do I have? Do I have Zoom and GoToMeeting and Teams and Citrix? What if I consolidate them? ” and Apptios Vice President Eugene Khvostov.
  • At Deloitte, Linthicum has seen customers save as much as 200% on their cloud bills after using an expense management tool. Although it is an outlier, “in many cases it will be 30% to 50% savings,” he said. And “in my experience, there will always be some kind of savings 100% of the time.”
  • And because many cloud management tools are quite affordable – typically 1% to 3% of what customers spend on cloud services in a month – the return on investment far outweighs the cost of subscribing. “Generally, you see an ROI for these within two weeks to three months,” Woo said.

While customers who are new to the cloud will face many of these issues, over time they will become better at understanding how to manage their own expenses.

  • “Initially, it’s usually a pretty big bang for the buck, and then it disappears over time,” Adler said.
  • But as customers become more adept at managing their own expenses, can the demand for these services decrease? For some, the answer is no, as managing cloud spending requires continuous monitoring.
  • In the cloud, cost management is about the ability “not only to have observability so you can see where costs are going, but to have observability around the interdependencies, observability around how things will be billed in the future, and do it across platforms,” ​​he said. Linthicum.

Without cost management tools, companies would need to build their own internal processes and software to have that level of visibility across their cloud spending. Although it is possible, it is much easier to buy a subscription.

– Aisha Counts (E-mail | Twitter)

A MESSAGE FROM FORMSTACK

Join experts from Salesforce, Crowe, Banner Health and Formstack as they discuss the 2022 State of Digital Maturity: Advancing Workflow Automation report, the movement toward continued automation and the best ways to accelerate your organization’s digital maturity.

Read more

Cloud revenue overview

Microsoft enjoyed another quarter of strong cloud sales to start in 2022, when revenue from the company’s various cloud services increased by 32.2% to $ 23.4 billion. Again, Microsoft declined to share a specific revenue figure linked to Azure, but said Azure revenue increased 46% during its third fiscal quarter, about the same percentage growth as in previous quarters.

At the same time, Google Cloud said its revenue increased 44% to $ 5.8 billion, compared to last year. The device, which includes sales of both the Google Cloud Platform and Google Workspace, is still unprofitable, but it reduced its operating loss to $ 930 million.

AWS reports results on Thursday.

– Tom Krazit (E-mail | Twitter)

A MESSAGE FROM FORMSTACK

Join experts from Salesforce, Crowe, Banner Health and Formstack as they discuss the 2022 State of Digital Maturity: Advancing Workflow Automation report, the movement toward continued automation and the best ways to accelerate your organization’s digital maturity.

Read more

Thanks for reading – see you tomorrow!

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