The Hidden Costs of Cloud

Cyxtera Technologies • January 18, 2022 • 4 minute read

Hybrid IT, Enterprise Bare Metal, Colocation in Business

What you don’t know can hurt your bottom line

Cloud computing has easily affirmed itself as one of the largest game changers in computing history. Access to infinite scalability, flexible cost structures, and rapid time-to-market has made cloud networks the backbone of modern digital business. It is no surprise that the market has seen rapid growth in the past decade as both startups and enterprises have rushed to offload workloads onto the mythical “cloud.”

However, a decade later and the myth of the cloud is starting to crumble as organizations are stung by surprise bills, tightly-locked contracts, and escalating cloud egress costs. Enterprise giants Apple and Netflix, for example, were hit with fees of $50M and $15M, respectively, when they pulled data from their cloud providers. While the aforementioned companies are behemoths in the data realm and saw outsized bills, the financial pinch to smaller companies can feel even greater as their capital reserves and ability to cover unexpected costs are typically more limited.

So what are the hidden costs of cloud and where do they lie? How did we arrive at this point? And, perhaps most importantly, how are enterprises navigating all this given the speed, scale, and agility their digital business demands? Read on.

Out of sight, but not out of mind

Hidden costs are just that -- hidden from view. Regardless of whether they have been knowingly obfuscated or were simply overlooked or misinterpreted, when a business is hit with one it is going to hurt just the same.

  • Arduous autoscaling. Despite being a well-known benefit of cloud services, autoscaling doesn’t always translate into the flexibility it promises. Some cloud vendors require users to decide up-front on an “elasticity window,” which can later lead to capacity problems as bandwidth needs increase..
  • Discounts in disguise. Groceries stores bank on food specials, exhorting shoppers with promotions such as “5 avocados for $10.” Unwitting shoppers then buy five avocados thinking they’re getting a bargain, despite having only needed two and the extra avocados wind up going bad before they have the chance to be eaten. A similar phenomenon occurs in the world of data storage with many vendors offering attractive discounts for buying in bulk. As might be expected, the result of this is enterprises buying more capacity than they really need and getting locked into a contract with a single vendor.
  • Sky-high egress costs. One area to keep an eye on is the cost of moving data out of the cloud and onto the public internet. Billed in arrears and known as data egress fees, the cost of downloading data often takes organizations by surprise as they may be billed for not only active downloads, but also for applications and workloads that continue racking up unexpected costs.

The Cloud Paradox

As cloud usage continues to accelerate, organizations are realizing that while cloud architecture allows them to scale rapidly at the beginning of their journey, the pressure cloud fees put on financial margins as usage grows can be cost prohibitive. By way of illustration, a16z looked at the large SaaS companies, including Palantir, Slack, Snowflake, Datadog, and Asana, and found that on average their contractually committed cloud spending represented 50 percent of their total cost of revenue (COR).

As the cost of cloud usage continues to spiral, many companies have taken action. Some, like Dropbox, which saw $75M in savings following a 2016 infrastructure overhaul, have had success in “repatriating” the majority of their workloads and dramatically reducing their reliance on the cloud. Repatriation, however, is easier said than done, and it’s not the right approach for every workload or organization. The high capital expenditures and long lead times that have been a challenge in deploying on-premise infrastructure remain unchanged. As a result, the bulk of organizations are focusing on hybrid strategies that allow them to achieve a “best of both worlds” solution.

Hybrid IT: The best of both worlds

Hybrid IT unifies public cloud, private cloud, and on-premise infrastructure to create a single, flexible, cost-optimal IT infrastructure. This approach to networking has surged in popularity because it enables IT leaders to efficiently scale operations, which in turn, allows the business to quickly enter new markets and react to changes in the marketplace.

By utilizing a hybrid environment, organizations can lower both capital expenditures and the fees associated with increased public cloud utilization. In addition to reducing total expenses, this yields increased financial flexibility and more predictable costs that are easier to control and forecast.

Built for enterprise agility

Smarter and more agile than traditional data centers, Cyxtera provides intelligently automated and deeply connected infrastructure to businesses around the world – enabling them to scale faster, meet rising consumer expectations, and gain a competitive edge.

We enable businesses to centralize their complete data ecosystem through a software-defined platform that offers on-demand provisioning and customization of each of the elements of a traditional data center, including storage, compute power, networking, and management. The ability to spin up dedicated servers on demand (without buying the physical hardware), allows enterprises to build, deploy, and manage their infrastructure on an entirely OpEx model, which in turn, allows for manageable, predictable costs.

Reach out to our Sales team to learn more about our hybrid cloud offerings.

Views and opinions expressed in our blog posts are those of the employees who made them and do not necessarily reflect the views of the Company. A reader should not unduly rely on any statements made therein.