Are Rumors of Cloud Spending Slowdown Greatly Exaggerated?
Find out what cloud MSPs Unisys, Mission Cloud, Lemongrass, ClearScale have to say.
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There’s been a lot of ruckus around a supposed slowdown in cloud computing spending. The hyperscalers’ last three earnings reports seemingly have indicated less uptick among customers — even as the providers’ revenue growth stays in the (ultimately unsustainable) 30% range.
But because recent numbers have not kept pace with pandemic-era demand, analysts and investors are panicking; they see cash cows drying up.
So what’s really going on? According to the MSPs we interviewed, the answer reflects what Channel Futures suspected and posited last summer: long-overdue stabilization.
“I think identifying it as a global slowdown is a bit of a misperception,” said Lemongrass’ Eammon O’Neill. “The spending is still growing. What we are seeing is a slowing of the increase in spend, but it ’s still increasing over 30% annually, which is huge for any other industry.”
Lemongrass clients, for example, are not reducing the number of workloads they’re running. Instead, they are optimizing those workloads “to get a better return or reduce their costs.”
Unisys’ Matt Bologna agreed.
“I am not seeing a reduction,” he said. “We are seeing customers looking for optimization of their environments, but I am drawing a distinction between customers drawing down vs. optimizing.”
Same goes over at Mission Cloud. Over the past six months, the MSP has helped a number of users “realize double-digit percentage savings on their cloud spend,” said Jonathan LaCour. The company achieves these ends through cost optimization efforts, savings programs, enterprise commitments and “strategically reduced” consumption, LaCour said.
That last comment is important. Organizations often can’t afford, in terms of productivity and revenue, to axe cloud workloads. Rather, they simply need to make better use of what they have — turning off services when no one is working, for instance, or closing out test buckets that have served their purpose, or streamlining container use. The list could continue ad infinitum.
Over at ClearScale, an ethos prevails, similar to that expressed by its peers. The Amazon Web Services consultancy typically helps customers lower their expenses by 30-35%, said Pavel Vasilyev. Those savings come from expense-optimization strategies, not from removing AWS resources, to the aforementioned point.
“Customers are searching for cost-effective solutions while maintaining optimal performance,” Vasilyev said.
On the next slide, we examine whether any part of cloud cost optimization has meant a shift to independent cloud vendors.
Companies including Vultr, Linode (now owned by Akamai), DigitalOcean, Wasabi and SoftIron, among others, deliver some services cheaper than the hyperscalers do. Yet, in many cases, these vendors cannot compete on the global scale and with the breadth of services that Amazon Web Services, Microsoft Azure, Google Cloud, Oracle Cloud and additional behemoths offer. However, they do tend to fare well with basic cloud infrastructure such as storage. That got Channel Futures wondering: Are MSPs helping customers optimize or reduce Big 3 public cloud spending by moving some workloads to those indie providers?
The answers surprised us.
“My belief is that these alternatives increase complexity with not much return,” said Unisys’ Bologna, who has not seen or recommended such activity among clientele. “Customers are still trying to adopt cloud-native and optimize, so taking on more complexity does not make sense.”
Mission Cloud’s LaCour agreed.
“This has not been a driver of cost reduction by our customer base, and is not a path we would recommend,” he said.
Like Bologna, LaCour said that moving cloud resources to other providers results in complications, including “significant operational overhead” and less opportunity for committed volume pricing.
Instead of talking migration, Mission Cloud shows customers how to “get strategic about their spend, and use the many options provided by AWS to reduce cost,” LaCour said.
Lemongrass’ O’Neill, too, cited the difficulty tied up in moving to indie cloud providers. In fact, he said, thinking about cost optimization or reduction that way “is a bit of a false economy. What I mean by this is, even though some of the list prices for the services may be lower with these types of vendors, you must first build the capability to support the systems.”
That’s no simple or cheap feat.
“You must build an entire landing zone,” O’Neill said. “You must have security, connectivity and other foundational elements in place — and all that is very expensive. So, adding another platform to save money is a false economy. You’re going to spend a lot of money to get set up to use a service that may only be slightly less expensive than what you already have.”
So, how are these MSPs helping customers better control their cloud costs while keeping the services they need? Go to the next slide.
These days, more cloud end users are paying closer attention to spending. They’re doing this through MSPs’ financial operations practices and guidance, which usually include recommendations for optimizing workloads, making the most of contracts and commitments and, where applicable, reducing consumption.
“After addressing low-hanging fruit such as right-sizing, lights-out policies and pruning of unused resources, optimization efforts turn to more involved activities that may require light refactoring or re-architecture,” said Mission Cloud’s LaCour.
Once that’s done, Mission Cloud tackles items including reserved instances, savings plans, and volume- and commitment-based private pricing.
It all boils down to more efficient use of cloud resources, said Lemongrass’ O’Neill.
“Cloud is meant to be an elastic service,” he said. “It’s meant to be there when you need it and not when you don’t want it. And there’s a range of ways to optimize its usage. I will say that we are seeing customers much more interested in these practices today than they were a couple of years ago.”
That makes sense, given that the worst of COVID-19 appears to be over. Throughout 2020, 2021 and even some of 2022, organizations overprovisioned cloud resources and overspent as they reacted to global lockdowns and the need to support remote work. Now, though, business leaders’ focus has shifted from supporting workers to reining in expenses, especially as macroeconomic pressures weigh down the world.
To those points, MSPs have been delivering cloud cost optimization guidance for varying amounts of time. Unisys started about two years ago; Mission Cloud since its founding in 2017; Lemongrass since its inception; and ClearScale before COVID-19.
Up next, get some expert tips on how to help customers optimize, not just reduce, their cloud spending.
There are a variety of ways to help end users control and make the most of their cloud spending.
First, any chance of ongoing success requires dedication to financial discipline. The FinOps Foundation has emerged as a leader in promoting this train of thought. From there, show customers how to take advantage of cloud providers’ internal management tools. Some MSPs, including Mission Cloud, also provision proprietary management platforms. On top of that, dozens of vendors offer cloud cost and optimization software and/or consulting services. Usually a combination of people and platforms leads to the best results.
Here are some specific pointers from Unisys, Mission Cloud, Lemongrass and ClearScale, for increasing efficiency:
• Understanding usage patterns to improve service scheduling or autoscaling.
• Tagging resources.
• Making sure storage is being used most optimally.
• Managing contracts with attention to areas including discounts, reserved instances, savings plans and funding directly from the hyperscalers.
• Automating processes to eliminate manual intervention and improve costs.
• Tracking providers’ new services releases, which can replace existing applications, delivering more features for less money.
• Making cost optimization a continual process, not a one-time event.
• Monitoring bills for unexpected expenses.
Consider some observations from MSPs about their customers and cloud spending.
O’Neill at Lemongrass notes that more clients are going direct to the hyperscalers, rather than buying through an MSP.
“They do it because they feel there will be a closer relationship, which, in turn, will give them a bit more leverage over the hyperscaler,” he explained.
But the reality is this — and it’s one fellow channel partners may want to emphasize to potential customers: When purchasing through an MSP, end users get “exactly the same access, capabilities and discounts” as they do when going direct. And they arguably get better support. Still, a new trend is popping up where MSPs are fielding fewer resell deals, O’Neill said.
Another area to watch pertains to multicloud. Supporting multiple cloud environments is tough, and makes spending management harder. Organizations often fare better when relying on a third-party partner such as an MSP so they don’t have to assign valuable internal resources to expense and optimization administration. ClearScale’s Vasilyev argues for this approach for an additional reason.
“One thing we often see is that companies haven’t figured out how to manage their cloud environments and applications efficiently,” he said. “Many are still using the same processes they used with their on-premises environments.”
Handing over management responsibility to a channel partner takes load off the end user and should deliver significant and positive outcomes.
So, after talking with a select number of cloud MSPs, the consensus is that spending is not actually slowing down, it’s just becoming more measured and precise. That is nothing if not a win for channel partners and their customers, especially in the current economy. Partners thrive when they create trust and loyalty with their end users. Providing guidance (and services) around the best ways to optimize and manage the cloud offers a key way to achieving a win-win situation.
So, after talking with a select number of cloud MSPs, the consensus is that spending is not actually slowing down, it’s just becoming more measured and precise. That is nothing if not a win for channel partners and their customers, especially in the current economy. Partners thrive when they create trust and loyalty with their end users. Providing guidance (and services) around the best ways to optimize and manage the cloud offers a key way to achieving a win-win situation.
Wall Street analysts and investors are terrified of a cloud computing spending slowdown. After some rocky-ish three or so quarters of earnings reports from Amazon Web Services, Google Cloud and Microsoft Azure, you’d think the sky is falling.
Turns out, rumors of a cloud spending slowdown might be just a wee bit exaggerated. (Especially when you recall that each hyperscaler still reports around 30% quarterly growth — an unheard of figure in other industries.) With all the hype, we figured it was time for some on-the-ground channel partner perspective. So we sought out a number of cloud managed service providers. Channel Futures landed interviews with four key cloud MSPs: Unisys, Lemongrass, Mission Cloud and ClearScale.
Each of these experts has unique insight into end users and their cloud spending habits, and whether a cloud spending slowdown is really taking root. Unisys works with Amazon Web Services, Microsoft Azure and Google Cloud. Lemongrass specializes in SAP on Microsoft Azure, Google Cloud and AWS. Mission Cloud and ClearScale are all-AWS practices.
In the slideshow above, MSPs dive deep into whether a cloud spending slowdown is in play. And they offer sound advice to peers for helping end users better manage their environments — a must in an era of economic belt-tightening.
Want to contact the author directly about this story? Have ideas for a follow-up article? Email Kelly Teal or connect with her on LinkedIn. |
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