Market Alert: NetApp Agrees to Acquire CloudCheckr to Improve Cloud Cost Environments

On October 4th, 2021, NetApp announced a definitive agreement to acquire CloudCheckr, a market leader in cloud financial and operational optimization. NetApp positions this acquisition as accretive to its agreement to acquire Spot (now called Spot by NetApp post-acquistion) in June 2020 to support hybrid cloud optimization and usage management. This Market Alert explains why NetApp agreed to purchase CloudCheckr and provides recommendations for cloud professionals seeking to make a decision on purchasing or evaluating a cloud cost, cloud optimization, or Cloud FinOps (Financial Operations) solution.

About CloudCheckr

CloudCheckr was founded in 2011 in Rochester, New York in the United States as a solution to support the cost management, operational automation, compliance, and security of cloud Infrastructure as a Service. CloudCheckr was founded by Aaron Klein and Aaron Newman, who currently serves as Chairman. Over the past decade, CloudCheckr has gained over $4 billion dollars in spend under management to support over 600 clients and 10,000 employee users.

CloudCheckr raised its first significant round of funding in 2017, when it announced a massive $50 million Series A round from Level Equity. (Note: This acquisition occurred a couple of months before Amalgam Insights was founded, but I covered this announcement at my previous firm.)

This unusually large round of funding was justified by CloudCheckr’s status as a profitable bootstrapped organization with the opportunity to scale in a high growth area. At the time, CloudCheckr had over 150 clients and $1 billion in spend under management, meaning that the organization has grown roughly four times as large over the last four years after this initial round of funding. CloudCheckr also raised a second round of $15 million in 2019 from Level Equity to support product and engineering capabilities around the same time that the firm appointed Tim McKinnon as CEO.

Contextualizing the CloudCheckr Acquisition

Cloud optimization has been a rapidly growing market for several reasons: the IT Rule of 30, the growth of the IaaS market, and the nascent and emerging nature of best practices for managing cloud computing.

First, Amalgam Insights’ IT Rule of 30, which states that every unmanaged IT subcategory averages 30% waste, is definitely true in for Infrastructure as a Service (IaaS), where cloud spend is poorly governed and where end users, procurement, accounting, and finance are rarely working together as a team to manage these costs in a coordinated fashion. From a cloud perspective, this percentage roughly equates to moving from about 50% utilization to 80%+ utilization of provisioned services based on active monitoring of services.

Second, the IaaS market as a whole continues to grow roughly 25% per year as roughly 60% of institutional or enterprise-grade storage and compute is in the cloud rather than an asset-intensive data center investment.

Third, cloud IaaS billing and product deployment are still fairly immature or agile (depending on your point of view) with rapid launches, updates, changes, and obsolescence based on adoption trends and customer requests. From a functional perspective, this rapid change can often provide great value, but it also means that the financial expectations associated with instances can often change without any formal change management, billing review, or contractual review. All of these trends lead to a volatile billing, usage management, and compliance environment that is difficult to manage without a combination of proactive analysis, alerts, and holistic visualization.

How CloudCheckr Augments Spot by NetApp

NetApp’s acquisition of CloudCheckr fits well into the trends of this space and can be seen as part of a trend of acquisitions that includes Apptio’s 2019 acquisition announcement of Cloudability or Flexera’s 2018 acquisition of Rightscale or VMware’s 2018 acquisition of CloudHealth Technologies. All of these acquisitions filled the needs of IT management providers to support multi-cloud management for enterprises and managed service providers seeking to manage large pools of cloud spend and resources. From Amalgam Insights’ perspective, these are still early days for cloud computing as a whole as cloud currently makes up roughly a third of enterprise data infrastructure spend. From a market perspective, AI believes that we are in a period where cloud infrastructure cost management vendors represent growth assets now that multi-cloud best practices are starting to emerge and cloud service providers are treated more along the lines of telecom carriers for services that provide utility pricing and capacity.

At a time when cloud computing is obviously the highest growth area for IT spend, with IaaS spend expected to double every three years for the rest of this decade, IT systems management firms see the complexity of cloud as a fundamental challenge to the ongoing management of cloud services.

This acquisition builds onto existing Spot by Netapp’s capabilities in supporting usage and resource tracking as well as NetApp’s recent acquisition of Data Mechanics to support big data analytics. Although initial press releases and interviews position CloudCheckr as an acquisition to help support Spot by NetApp, Amalgam Insights notes that these two technology solutions are different in nature.

Spot by NetApp excels in providing a software-driven capability for monitoring and optimizing storage and compute infrastructure. This optimization provides a lot of value and can often seen as a be-all and end-all for infrastructure cost management to identify the portfolio of on-demand, reserve, and spot instances used to support infrastructure.

However, experiencted IT expense managers have seen that IT cost management requires a holistic lifecycle approach that involves a combination of usage optimization, service order automation, resource governance, inventory management, multi-cloud sourcing, invoice and payment management, and effective alignment of services with business-driven demand. This level of analysis requires a view into the products, cost centers, projects, and comparative cloud usage patterns that may require changing services and providers or using alternative billing approaches such as setting up reserved instances or savings plans for ongoing operationalization.

At the same time, cost management in the cloud is also often related to managing access and governance associated with existing resources. A basic example of this issue is Amazon S3 bucket governance, which can both be a security issue as well as a potential cost issue based on what is placed within the bucket.

Recommendations for the Cloud, FinOps, and NetApp Communities

As we consider this acquisition, it is important for us to not simply recommend a purchase, but to provide a course of action that will help IT departments to optimize their cloud environments. Based on this acquisition, Amalgam Insights provides the following recommendations based on our experience in tracking cloud cost and Kubernetes cost management over the past four years.

1. To manage cloud costs, resource optimization is just the starting point. To fully tackle the IT Rule of 30 and regain all of the misplaced IT costs created in less governed times, it is important to make sure that all orders are governed with business logic. The goal here is not to prevent developers from quickly building but to make sure that every service is accounted for, effectively governed, and disconnected in a timely and appropriate manner. From a practical perspective, this monitoring requires some level of centralization that allows all developers and architects to have a shared version of the truth and a consistent inventory that brings together all accounts and services used by IT.
   
2. For CloudCheckr customers, this acquisition provides an opportunity to take advantage of the Spot by NetApp cost optimization capability, especially in selecting spot instances that can greatly reduce the cost of managing standard cloud workloads. This spot management capability requires a combination of process modeling and price monitoring that is typically outside the core skills of cloud architects or IT expense professionals that are looking at cloud costs.
   
3. For Spot by NetApp customers, consider both the value of presenting cloud costs for accounting and finance audiences as well as the power of governing resources to drive additional cost savings and increase the maturity of treating cloud as a strategic business resource. These are capabilities that CloudCheckr provides for enterprise cloud environments. From a practical perspective, IT departments should check and see if they have already covered these important aspects of cloud management either with homegrown or other third-party solutions. Amalgam Insights recommends that organizations that have not filled these gaps should consider adopting CloudCheckr capabilities.