Author: Kelly Teal

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Cloud Cost Management Part 2: Organizations Are up Against Big Challenges in Cleaning Up Cloud Costs — COVID Cleanup, Skills Shortages

The first blog in this series on cloud management and optimization discussed why organizations must make the most of their cloud computing environments – especially as a recession appears likely.

Now, in this second  installment, Amalgam Insights analysts lay out the argument in favor of using third-party software, consultancies, and managed services to achieve optimal cloud management status.

We do so knowing that many executives, fearful of a global economic slowdown, might feel tempted to automatically resist the recommendation to bring on another vendor. Thus, we take a step back to paint a picture of the challenges organizations are up against, and share insight, based on collective years of experience, about why paying to manage the cloud environment will, when done right, deliver the greatest value.

Cloud Management and Optimization: It’s About Much More Than Saving Bucks

As a reminder, almost any cloud management and optimization activity can save costs, at least to some extent. That is, of course, useful to any business intent on conserving financial resources. However, more to the point is that cloud management and optimization should lead to more productive, efficient, and deliberate use of cloud computing. After all, cloud supports remote and hybrid workers, as well as strategic corporate initiatives. Therefore, it must deliver. Rarely (if ever, frankly) do organizations get the most out of their cloud environments by trying to monitor and manage cloud resources through spreadsheets or piecemeal efforts.

In other words, Amalgam Insights asserts that it usually makes sense to spend money on the well-chosen cloud management and optimization tools — tools that support revenue-generating initiatives, whether directly or indirectly. The adage, “Spend money to make money,” rings true here as companies seek to eliminate duplicate resources, select the right storage and compute options for data and workloads, and tweak environments so they perform at their best.

The third-party platforms to which we refer support cloud environments at scale. They remove dependence on ungovernable, internally created spreadsheets, on hastily created Git pages with inconsistent documentation standards, and on disparate notes.

Yet, before teaming with a cloud cost management and optimization software, or a professional or managed services provider, it is vital to understand the challenges all organizations share, as well as those that are more specialized, which may require a more custom approach. After considering all the guidance in Amalgam Insights’ 2022 report, Control Your Cloud: Selecting Cloud Cost Management in the Face of Recession, IT, finance, and data leaders should find themselves well-equipped to identify and choose among the options. (Any enterprise executives in search of independent assistance are invited to arrange a consultation with Amalgam Insights analysts. )

The Enterprise Challenges Addressed By Cloud Management and Optimization

Regardless of size, organizations relying on cloud computing face a variety of challenges, especially in the wake of COVID-19-fueled rollouts. Recall that the pandemic in early 2020 forced most businesses worldwide to increase adoption of cloud computing — whether infrastructure, platform, and/or applications — so they could remain operational amid lockdowns and economic upheaval.

The sudden flurry of deployments often was messy; IT personnel quickly spliced together cloud solutions to keep employees connected so they could work remotely. In most cases, there was little or no time to think about how many cloud environments were running.

Then, as enterprises shifted from full-on crisis to figuring out the New Normal of worker expectations, organizations generally did not pause to assess the state of their cloud environments. This typically came down to a lack of awareness or internal skills.

At the same time, the pandemic created a staff and skills shortage that continues into 2022 and will extend beyond 2023. As an example, a recent Korn Ferry study indicates that, by 2030, the world will experience a human talent shortage of more than 85 million people. The staffing challenge is real. When it comes to evaluating and managing cloud environments, there are simply fewer IT experts available to conduct this work for their employers.

Despite the skills shortage, finance executives have grown more aware of looking into and trying to track cloud computing expenses. Still, this presents another hangup for enterprises that do not manage their cloud estates. The finance department lacks the granularity of data that will deliver the reports and insights needed. These leaders need the information that supports asking the right questions of the IT department about cloud computing outlay — and that helps them allocate charges among business units. Simply put, most organizations do not have usable visibility into their cloud environments.

Assessing Cloud Governance, Security, and Provisioning

Alongside the previous challenge lie two more — an absence of governance and security. Organizations that do not properly manage their cloud computing environments risk running afoul of their own policies, not to mention possibly those of various governments. Many organizations also are enacting environmental and sustainability initiatives. A number of cloud cost management and optimization platforms now support those efforts; spreadsheets cannot.

In addition, speaking to security, cyber threats gain even more traction within unmanaged cloud environments. While responsible cloud stewardship does not guarantee insulation against hacks, an absence of said stewardship almost certainly guarantees a breach.

Finally, many organizations are operating in over-provisioned cloud environments due to a variety of situations — say, employee demands for certain applications, an enterprise’s regional or global footprint, and idle resources.

All of the factors combined make for a perfect storm where the organization overpays even as it jeopardizes governance, security, and budget.

To sum up, enterprises are up against the following cloud computing challenges (see Figure 1):

Figure 1: Key Challenges for Managing Cloud Computing

Yet organizations can — and, Amalgam Insights contends, must — take steps to overcome these circumstances. And with global recession fears mounting, the impetus to do so comes as more pressing than ever.

In the third blog in this series, Amalgam Insights will go deep into the value organizations stand to gain by partnering with a proven cloud management and optimization provider.

Need More Guidance Now?

Check out Amalgam Insights’ new Vendor SmartList report, Control Your Cloud: Selecting Cloud Cost Management in the Face of Recession, available for instant download. 

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Cloud Cost Management Part 1: Understanding Challenges to Optimal Cloud Management

Since the start of COVID-19 more than two years ago, cloud computing infrastructure and platform spend categories have collectively increased 48% per year. That makes the related costs both an outlier in IT and a key target for potential expense reduction, especially as a recession — caused by the pandemic — hovers on the horizon.

 All in all, in 2022, global spending on cloud computing — including infrastructure and software — will total more than $350 billion, according to Amalgam Insights. As such, organizations require expert guidance for making the most of their cloud computing environments while, at the same time, trimming unnecessary outlay.

Cloud Computing By the Numbers

Amalgam Insights estimates that organizational investments in cloud computing infrastructure and platform services will continue to increase 25% per year for the rest of this decade. The reasons for shifting to cloud technologies mostly tie to the ongoing COVID-19 pandemic, and concurrent digital transformation and modernization projects that support workforce flexibility.

The reality of that momentum shows in the 48% annual growth of public IaaS and PaaS from 2019 to 2021, based on estimates from Gartner, IDC, Apps Run the World, and Amalgam Insights’ research that represents a $90 billion increase worldwide.

And a third of that $350 billion total is waste.

Understanding the IT Rule of 30

Amalgam Insights has done the math that demonstrates that unmanaged IT spend categories average 30% waste, due to the inherent lack of governance, sourcing immaturity, and lack of expense visibility. Given that public cloud computing constitutes a spend area covered by the IT Rule of 30, organizations are collectively spending billions of dollars unnecessarily. In the cloud computing world, waste often creeps up due to service duplication, and the unmanaged growth of production and sandbox resources. The combination leads to outsized cloud computing bills ripe for optimization and management.

 Deterrents to Good Cloud Computing Governance

Because cloud computing represents the fastest growing subcategory of technology spend in most businesses, this outlay requires strategic oversight from the finance, IT, revenue, security, and governance departments.

But consider some of the common barriers organizations face:

•       Finance and line-of-business executives in charge of budgeting need to understand that cloud computing costs are nuanced and cannot simply be slashed in proportion to the budget as a whole;

•       IT must choose and manage platforms, and assign and monitor users and consumption;

•       Software development and IT architects need to tag and track resources as cloud computing services are spun up and down;

•       Data experts have to ensure that the organization’s information within the various cloud resources stays in line with privacy laws such as Europe’s General Data Protection Regulation (GDPR), California Consumer Privacy Act (CCPA), and the Personal Information Protection and Electronic Documents Act in Canada.

Finally, we discuss three other important realities that hamstring a cohesive and effective cloud computing management and optimization strategy.

 Ch-ch-ch-Changes

First, cloud vendors tend to create new services rapidly with little to no prior notice — and they retain the right to change billing structures on an ad-hoc basis. For example, Amazon Web Services alone has 226 products across analytics, compute, containerization, database, developer tools, machine learning, networking, security, storage, and a variety of other technical capabilities. The vendor usually adds 20 or more new products every year. 

Even if adjustments benefit end users, they can prove hard to track. That means organizations can have a hard time ensuring that even just a single vendor’s billed costs match actual consumption and contractual terms. Imagine what happens when an organization relies on multiple cloud providers.

Inconsistency

Along those lines, the second challenge lies in using the data delivered by the cloud providers themselves. While the information — which can comprise usage, expenses, taxes, permissions, and consumption by user for each product — is vital, Amalgam Insights’ big caveat is that cloud computing vendors do not usually maintain consistent detail. This makes defining services ownership and usage — especially across specific projects and employees — difficult. After that, the burden of accurate project and departmental tracking falls on how well the organization has set up internal tags and tracking — typically a hit-or-miss proposition.

Siloes

The third is that when organizations institute cloud computing management and optimization, they tend to do so through software and managed services specific to the various components of cloud computing — think items including infrastructure (e.g. virtualized desktops, containerized workloads), software/applications, storage, compute, and networking. Such a siloed approach contributes to ongoing lack of visibility and communication among decision-makers, and sets the stage for less-than-optimal stewardship of the cloud environment.

Overall, these financial, operational, and governance requirements create complexity that can quickly morph into a full-time job for a software developer, cloud architect, or data manager. And each of these professionals is likely being paid handsomely to help grow the company — not track inventories, bills, and service orders. (Learn more in our companion piece, “An Important Side Note on FinOps and Cloud Economics”)

Tackling the Cloud Computing Management and Optimization Problem

For the most part, organizations recognize the need to better
manage their cloud computing environments. The impetus to do so increases amid
the threat of a global recession. Amalgam Insights contends that organizations — especially those using hybrid clouds or multiple public clouds — can gain significant
value, even during a worldwide economic slowdown, by using third-party
management tools. These platforms (and in many instances, associated consulting
and managed services) offer the cleanest insight into the cloud environment
while simultaneously assuring the wisest spending and delivery of more
sophisticated services to corporate and external clients.

In Part 2 of this series, Amalgam Insights will discuss the reasons to turn to a third-party cloud computing management and optimization partner, versus trying to go it alone and/or rely on vendor-generated data.

Need More Guidance Now?

Check out Amalgam Insights’ new Vendor SmartList report, Control Your Cloud: Selecting Cloud Cost Management in the Face of Recession, available for purchase. If you want to discuss your Cloud Cost Management challenges, please feel free to schedule time with us.

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Upcoming Amalgam Insights Report Alert: “Control Your Cloud”

The Big Takeaway: Cloud computing spending has reached new heights. Organizations need guidance to avoid wasting money. The “Control Your Cloud” SmartList will provide guidance for enterprises struggling to manage cloud costs.

Amalgam Insights forecasts that global spending on public cloud computing — including infrastructure and software — will total more than $350 billion in 2022. Driven by the ongoing COVID-19 pandemic and concurrent digital transformation projects, organizations will continue to invest in the cloud, to the tune of more than 20% this year. And the greater the investment made in cloud, the more room for waste. 

Savvy stakeholders, especially those who already pay attention to expenses in other technology categories (mobility, telecom, Software as a Service), know that uncontrolled cloud computing will significantly reduce any return on investment. Just as with wireless or networking or other strategic IT spend categories, department heads must come together to craft a strategic approach to overseeing cloud computing deployments and expenses. The stakes are too high.

Consider the wider perspective: Between 2020 and 2021, spending on public infrastructure as a service (IaaS) and platform as a service (PaaS) soared 37%. In numbers, that totals a $60 billion increase. 

Kelly Teal, Senior Research Analyst, Amalgam Insights

COVID-19, of course, served as the impetus for much of that growth. Anecdotally, cloud computing vendors have reported that the demand they expected to serve around 2030 hit a decade earlier because of the pandemic. As governments worldwide mandated lockdowns, organizations had to rush to support work-from-home setups for employees. Cloud computing delivered many of the capabilities businesses needed; IT teams scrambled, often cobbling together solutions that met staff needs but were not cost-effective. Leaders spent much of 2021 trying to rectify those issues, yet more cleanup remains to be done. Contractual obligations, employee preferences, and heavy lifting associated with a technology shift all can slow the process. 

At the same time, organizations face new challenges in 2022. Inflation rose by 7% by the end of 2021, just in the United States, according to the Consumer Price Index. Everyone is paying more for the same products and services, and wages are not keeping pace. Revenue may not make up for the gap, either. This leaves executives and line-of-business leaders more aware of spending than perhaps ever. Cloud computing represents a major area ripe for attention. 

Cloud computing also accelerates the ability to bring new ideas to market and execute on business opportunities. At a time when the attention and relationship economies require deeper and more data-driven understanding of customers, cloud computing allows access to the analytics, machine learning, and relevant connections that achieve that. Organizations need to translate new ideas into fully-fledged business units without investing millions of dollars in upfront cost on computing assets.

However, IT should not act alone when it comes to deciding how to manage cloud computing expenses just for the sake of getting the job done in a convenient way. Cloud computing, just like its wireless and telecom counterparts, impacts the entire organization. Therefore, the finance, IT, revenue, security, and governance departments all must be involved, on some level, in overseeing cloud computing investments. For example, executives in charge of budgeting need to understand cloud computing costs; IT must select and manage platforms and assign and monitor users and consumption; software development and IT architects need to tag and track resources as cloud services are spun up and down; and data experts have to ensure that the organization’s information within the various cloud resources stays in line with laws such as Europe’s General Data Protection Regulation (GDPR). 

Cloud computing is complicated. Executives across the organization need a deeper understanding of the intricacies so they can work together to spend wisely while ensuring no critical aspect goes overlooked. Amalgam Insights is stepping in to guide organizations through these considerations with our upcoming Vendor SmartList, “Control Your Cloud: Why Organizations Need Cloud Cost Management Capabilities in 2022.” 

Executives seeking to control cloud expenses need to read this report because it will provide expert analysis on the key cloud cost containment challenges of 2022 and the differentiated approaches to reduce and optimize cloud costs. The report also will features vendor profiles that cut through the hype and show why each vendor is different in a sector where marketing messages all seem to focus on the same starting points of reducing cost, providing financial visibility, and improving cross-departmental collaboration. This last issue emphasizes an important point: The profiles do not rank the providers that brief with Amalgam Insights. Rather, Amalgam Insights explores what makes each vendor different and offers guidance on why that vendor is currently chosen in a crowded marketplace. This level of detail gives organizations the knowledge to pinpoint which vendor(s) might best meet their needs for cloud computing cost management. 

The following stakeholders all will need to read and act on the report: Chief Technology Officers, Chief Information Officers, Chief Financial Officers, “Shadow IT” managers in sales and marketing, DevOps Directors and Managers, IT Architects, Vice President/Director/Manager of IT Operations, Product Managers, IT Sourcing Directors and Managers, IT Procurement Directors and Managers, IT Service Providers and Resellers. Each of these roles is crucial to achieving cloud computing success throughout the organization.

“Control Your Cloud: Why Organizations Need Cloud Cost Management Capabilities in 2022” will publish in the second quarter of 2022. 

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Zoom, Five9 Call Off the Wedding: What’s Next?

Reluctant shareholders have put the kibosh on Zoom’s intention to buy contact-center-as-a-service provider Five9. The deal would have amounted to almost $15 billion. 

But it was an all-stock deal. As it turns out, Five9 shareholders weren’t such fans of that structure. Zoom’s stock has declined 25% since the video conferencing behemoth announced in July it would buy Five9. Those share prices were not shaping up in Five9 investors’ favor. So, on Sept. 30, they voted against Zoom’s proposed, $14.7 billion purchase. As a result, Zoom and Five9 announced they had mutually terminated the acquisition.

Zoom had sought out Five9 for its cloud contact center expertise. Throughout the pandemic, organizations worldwide have relied on Zoom to keep their teams intact through video conferencing. To help users through uncertain times, Zoom has understood that it needs to deliver even more functional and appealing features, and it made good at Zoomtopia 2021. Part of its new platform announcements included the Video Engagement Center, which contains important contact center capabilities. Notably, though, Zoom debuted that component separate from any Five9 announcements. Did the company see Five9 shareholder rejection coming two weeks later or was it already planning to incorporate Five9 into its VEC portfolio? Either way, the answer might not matter much. Zoom and Five9 say they will still work together.

“We will continue to partner with Zoom like we did before, and just as we partner with other UC providers like Microsoft Teams, Nextiva, Mitel, and others,” Five9 told analysts in an Oct. 1 statement. “This allows us to offer customers the choice they often crave when looking at building out their [customer experience] ecosystem.”

Zoom CEO Eric Yuan said his company will “maintain our valued existing contact center partnerships with companies like Five9, Genesys, NICE inContact, Talkdesk, and Twilio.” 

Amalgam Insights believes Five9 did indeed present Zoom with an attractive acquisition target. The 20-year-old Five9 stands out as a pioneer in cloud contact center. It was among the first contact center developers to understand the need for multimodal chat — not just phone conversations, which often frustrate users enduring iffy interactive voice response, but giving agents and customers the ability to communicate over email, social media, chat function, and text. It also homed in on the importance of easy-to-access analytics to help improve the customer experience in real-time. Combining Zoom and Five9 would have added more heft to Zoom’s offerings. Nonetheless, for its part, Five9 is doing just fine on its own as a standalone public company (fluctuating stock prices notwithstanding); it boasts a $10.6 billion market capitalization. While a union between it and Zoom would have created a global giant, both companies can fuel success by partnering with one another — again, as they say they will do. 

Even so, Zoom needs to diversify. The company tripled its value over the past two years, thanks in no small part to COVID-19. Demand for its services led to an extra $50 billion (and counting) in its market cap and spending power. Now is the time for Zoom to prove it can hold onto, and keep powering, its dominant position. For sure, the company made waves at its Zoomtopia 2021 event in mid-September, giving Amalgam Insights analysts reason to predict the video conferencing provider is aware of the mandate in front of it. Zoom debuted much-needed enhancements — from live translation and transcription and Smart Gallery improvements to hot desking and events hosting — that promise to make video conferencing far more than a pandemic-related enabler. Zoom appears to be hyperfocused on innovation.

Still, if it decided to renegotiate a Five9 purchase with cash replacing some stock, the pairing would make a natural fit despite a first failed attempt. If that doesn’t happen, Zoom should keep an eye out for other unified communications and contact center players that would beef up its platform in unique ways. Five9, meanwhile, may be courted by the likes of Salesforce or Adobe as the contact center becomes an even more ferocious battleground for supporting customer centricity. Both of those companies are high on the list of vendors needing to augment their video conferencing platforms with differentiated integrations, and both have deep pockets.

Overall, even if Zoom does not retool its bid, or if Five9 moves on to greener pastures, both Zoom and Five9 must stay trained on the future. Hybrid work represents the next major paradigm for organizations, and it’s a challenging one for them to navigate. They have to accommodate in-office and remote workers, and many of those people will flow between the two modes. This calls for stringent attention to concerns including data protection, yet requires easy-to-use tools and omnipresent support for the shifts between in-person and at-home working. The vendors that make hybrid work simple and smooth are the ones that will prevail. As Zoom continues its mission to “make video communications frictionless and secure,” it must continue to lead both with the innovation and flexibility that made it a surprise hit in 2020. And regardless of whether Five9 is acquired or remains an independent vendor, the demand for omnichannel and preferred channel support will stick. As such, Five9 will keep evolving cutting-edge technologies to improve the state of customer interaction.