In fall of 2018, the software company Adobe ran into a problem that would make any finance professional’s blood run cold: a development team at the company accidentally racked up $80,000 a day in unplanned charges for a computing job on Azure, the cloud computing service run by Microsoft. The mistake wasn’t discovered for more than a week. By the time it was, the bill had snowballed to well over half a million dollars.
Adobe isn’t the only prominent company to struggle with managing their cloud computing costs. Pinterest, Capital One, and Intuit have all been surprised by sudden increases in their bills from Amazon Web Services (AWS), according to reporting by popular tech site The Information. Adobe’s bill reportedly rose 64% from 2017 to 2018, while Pinterest’s increased 41% and Capital One’s spiked by 73%.
And it’s not just marquee brands, either. Cloud spending is increasing at organizations across the board. The median cloud spend for small-to-medium businesses is right around $120K — and 10% of SMBs are spending $1.2 million or more.
What that means is that for today’s CFOs, cloud management is no longer a “nice to have” — it’s mission critical. But as the team at Adobe can attest, getting a handle on cloud spending is easier said than done.
What does it take? Communication, collaboration, and tools that give stakeholders visibility into where spend is going and why. We’ll get to all those momentarily. But first, let’s take a look at how we got to this particular moment in computing history, and what’s at stake for finance leaders in mastering the cloud computing challenge.
It’s cloud computing’s world — we’re just living in it.
There’s no denying that cloud computing plays an increasingly central role in how business gets done in the 21st century. Cloud computing infrastructure and applications will total $214 billion in 2019 — up 17.5 percent from 2018, according to Gartner.
Increased cloud costs aren’t necessarily a bad thing. Sometimes, it’s a reflection of business growth. Others, it’s a strategic investment. Adobe, for example, began investing in additional cloud computing space in 2013, when they decided to switch their popular suite of products, including Photoshop and Illustrator, to a cloud-based subscription model. Intuit made a similar move with its core offerings, including TurboTax.
The switch from private servers to the cloud carries a number of advantages, including increased flexibility and agility. And at a time when computing power is no longer just a cost center, but a source of competitive market advantage, companies who don’t invest in cloud infrastructure could find themselves falling behind.
But there are challenges that come with the cloud, and monitoring spend is chief among them. According to one estimate, nearly 60% of organizations overspend their budget on cloud resources. And not all of that is money well-spent: A 2019 “State of the Cloud” report by Flexera finds that cloud users are wasting 35% of their spend. Doing some quick back-of-the-napkin math, if you’re an SMB spending roughly $120K on cloud services, that’s $42,000 in cloud spending going up in digital smoke.
And the stakes in getting cloud spending right are very real. In a survey of IT and finance professionals conducted by Cloudability, 80% of respondents said that poor cloud money management is a problem because it slows or halts cloud adoption (53%), cripples innovation (25%), lowers quality of service (38%), leads to sprawl and under-utilization of resources (40%), and increases cost (22%).
All of this is happening at a time when spending within organizations is becoming increasingly decentralized. International Data Corporation (IDC) predicts that by 2020, more technology spend will be decided outside the IT department than within it.
CFOs and other financial leaders face a delicate balancing act when it comes to managing cloud costs. On the one hand, they seek to maintain good governance and ensure cost and risk are being managed effectively. On the other hand, they want to empower their team to get access to the tools and resources they need to do their jobs, and make investments that are going to move the business forward.
How does one find that balance? The successes and failures of leading companies provide insight into best practices in cloud spending and the steps financial leaders can take to be successful in this space.