Introducing the cloud reduces costs unconditionally? Wait a minute…

The industry narrative over the last decade has been that everything should go to the cloud. The cloud was the foundational infrastructure for innovation and has been praised as an industry favorite in reasonably reducing IT costs. Cloud has become a standard that no one can argue against, with overall decreased spending on IT but increased spending on the cloud as a result of the pandemic.

Zoom, a video conferencing solution, was able to add 5,000 to 6,000 servers per day through AWS public cloud infrastructure to meet the explosive demand during the early days of the COVID-19 outbreak. CEO Eric Yuan said, “If it weren't for the help of the cloud at that time, Zoom's data center would not have been able to scale quickly enough to meet the unprecedented traffic.”
For this reason, Netflix has to pay 570 billion won to AWS every year, and slack, asana, and others3) have to pay 40-60% of their sales to cloud providers, such as AWS.

estimated annualized committed cloud spend as % of cost of revenue(average:~50%)
  • palantir:38%, slack:41%, snowfloke:44%, datadog:58%, asana:63%
Data source: Andressen horowitz, “The Cost of Cloud, a Trillion Dollar Paradox” Report

But at the same time, CIOs and CFOs of organizations that panic-bought cloud services in response to the pandemic are beginning to question whether their cloud investments were truly cost-effective. They wonder if cloud projects that promised cost savings and enhanced features actually deliver lower costs and ROI. On top of that, a report titled "The Cost of Cloud, a Trillion Dollar Paradox," published by a venture capital firm called "Andreessen Horowitz," is arousing heated discussions between cloud skeptics and cloud supporters. They analyzed the cloud costs of the top 50 software companies and argued that while the cloud has a clear advantage in regard to flexibility and accelerating innovation, costs may vary depending on the situation.2)
Now, CIOs and CFOs are paying attention to “Cloud Repatriation.”

Data Source: Western Digital Blog, July 9, 2019

“Cloud repatriation” is not a new concept. Clouds built around computing can explode in costs as storage usage increases. Dropbox5) carried out a massive infrastructure optimization project called “Magic Pocket” in 2016 as cloud spending skyrocketed. In this case, it saved nearly $75 million over two years by shifting most of its workloads from the public cloud to data centers it leased and operated directly.2)

Dropbox logo

In addition, cloud security platform companies, such as CrowdStrike6) and Zscaler7) and New Belgium Brewing, a craft beer brewing company, are also companies that have moved to their own data center and have seen some positive results. Thomas Dullien, former Google engineer and founder of Optimyze, a cloud computing optimization company, said, “$100 million spent on public cloud could be saved by “cloud repatriation (move to on-premises)” to about half of the Total Cost of Ownership (TCO), including server, real estate, cooling, network, and engineer costs.”

No matter what anyone says, for startups or new projects like Zoom, a public cloud where you can easily expand new resources, shut down what you don't need, and pay only for what you use, is an obvious choice. It's worth paying some flexibility tax for the agility and stability that the cloud offers. However, once it reaches a certain scale, it is necessary to optimize it to avoid a tax bomb. Zoom also moved its core services from AWS to Oracle Cloud in April 2020.9)

Zoom & Oracle logo

For many companies, relocating workloads that have already been put into the cloud is not easy to justify, given the amount of effort involved. Nevertheless, it is necessary to constantly analyze and redeploy workloads. This requires several efforts.

1. Cloud spending should be managed as a KPI. Spotify, an online music streaming service provider, monitors cloud spending with Cost Insights, a cloud cost management solution developed in house, and gives ownership to IT developers, as well as finance teams.
2. Just like incentives for sales, it is also useful to give incentives to IT developers as they reduce their cloud spending.
3. Whether it's cloud repatriation or migration to another cloud, consider an exit strategy and leverage open source containers, such as Kubernetes, to make it easy to move workloads.

It is too late to consider the cloud repatriation or migration when cloud spending starts to outpace sales growth. From the initial system architecture design, it must be designed with repatriation or migration in mind, and it must be continuously monitored and analyzed to optimize infrastructure costs. It is not easy to do all of this in general companies. Selecting a clever MSP company to do this in return may determine the rise and fall of the company. Next time, I'll come back with a story about MSP companies.

[1] IDC, "IDC Forecasts Worldwide 'Whole Cloud' Spending to Reach $1.3 Trillion by 2025" (Sep 14, 2021)
[2] andreessen.horowitz, “The Cost of Cloud, a Trillion Dollar Paradox” (May 27, 2021)
[3] asana: SaaS that manages team projects and tasks based on work graphs
[4] Workload: A collection of resources and codes that create business value, including customer-facing applications and backend processes
[5] Dropbox: Web-based file sharing service provided as cloud storage, an online storage space
[6] CrowdStrike: Cloud-native endpoint protection platform
[7] Zscaler: Cloud-based security service platform
[8] CIO.com, “10 reasons to keep that data center running” (March 31, 2022)
[9] Oracle Press Release “Zoom Selects Oracle as a Cloud Infrastructure Provider for Its Core Online Meeting Service” (April 28, 2020)

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Eunjung Lee
Eunjung Lee

Samsung SDS Marketing Insight Group

Based on many years of business planning experience, she identifies opportunities for various Samsung SDS products and markets them. She is No. 1 on the blacklist, and is always poking her nose into other people's business in product planning and sales