Reining In Cloud Computing Costs In 2025

With cloud computing costs skyrocketing, midmarket organizations should assess what needs to run on cloud and what can remain on premise.

This year, CloudZero surveyed 1,000 finance and engineering professionals about their cloud usage and costs in a survey it conducted this year.

From the survey results, many organizations say they are burdened with high cloud compute costs and even struggle to accurately tally their cloud spending.

Fifty-eight percent of those surveyed said their cloud costs were too high, according to CloudZero’s report. Forty-two percent said they could only estimate costs associated with the cloud, and two-thirds of companies said they were unable to accurately measure cloud costs.

While the survey focused on companies in two specific sectors, concerns over spiraling cloud computing costs and frustrations with visibility into those costs abound in all industries. According to CloudZero’s report, the global cloud computing market grew from $24.63 billion in 2010 to $156.4 billion in 2020 –a 635 percent jump.

Earlier this year, MES Computing published a survey of 130 senior IT leaders. Fifteen percent of those surveyed said they would spend more on cloud computing in 2024 versus 2023. With rising cloud costs, many of these leaders said they planned to eliminate over specified or underused infrastructure.

AI is also increasing cloud computing demands, especially for managed service providers.

“The cloud computing industry is undergoing a transformative shift, with the 'AI rush' reshaping the way managed service providers (MSPs) operate,” Jake Madders, co-founder and director of Hyve Managed Hosting, said in a statement to MES Computing. “As enterprises race to adopt AI, hosting AI-centric workloads comes with financial and operational challenges for MSPs due to the need for specialized hardware, GPUs, TPUs, custom AI chips, as well as energy-intensive cooling systems. Looking ahead, 2025 may bring us closer to the critical tipping point where these challenges can be turned into opportunities for MSPs,” Madders said.

MES Computing spoke with Induprakas Keri, senior vice president and general manager of hybrid multi-cloud at Nutanix, about when going all cloud makes sense and when a hybrid or premise model is more appropriate, the unique challenges cloud computing holds for midmarket organizations, and how companies can set about reining in cloud costs – insight for IT leaders evaluating their cloud computing for the new year.

Going Over Budget

While the public cloud is a great place for “innovation,” Keri said that organizations can exceed their cloud computing budgets when running applications in the cloud.

“Unless the application turns out to be incredibly elastic, you’re probably going to spend more money running an application in the public cloud in the long term than running it somewhere else,” he said.

Keri gave an example of the costs associated with an elastic versus inelastic application from his former role at Intuit, where he led the migration of Intuit apps – TurboTax and QuickBooks onto AWS.

“TurboTax is an incredibly elastic application,” Keri said. “It turns out four days of the year account for 85 percent of the business, Super Bowl Sunday, April 15, April 14, and October 15. Because what happens is you get your W2s, literally, the last week of January. And if you get money from the government, you basically file your taxes on Super Bowl Sunday.”

And October 15 is the tax filing deadline for those who requested an extension to Tax Day.

“Those four days account for 85 percent of the business ... so the public cloud is amazing for that because any gear that you have on prem is going to be idle 90 percent of the time for 90 percent of the year,” Keri said. Because if you run it all on prem, you have to provision for peak effort ... on April 14 or 15.”

The Problem For The Midmarket: Containing Sprawl

Midmarket organizations, “which are strapped for IT capability to begin with” often end up with “significant amount of sprawl” in the public cloud, Keri said, due to the ability to quickly spin up servers and applications.

Before utilizing the public cloud, organizations should think about what their computing spend will be, and how they are going to measure and monitor application usage and resource utilization.

Fleeing The Cloud And Why Hybrid May Be Ideal

Depending on the application, sometimes the cloud is not the answer.

Keri cited the example of 37Signals, makers of Basecamp and the Ruby on Rails coding language, announcing that it was leaving the cloud.

“By continuing to operate in the cloud, we’re paying an at times almost absurd premium,” 37Signals founder David Heinemeier Hansson wrote in a 2022 blog post.

Hansson said his company was paying over half a million dollars per year for database and search services from Amazon.

“Do you know how many beefy servers you could purchase on a budget of half a million dollars per year?” Hasson said about the company’s decision to move their operations on premise.

However, midmarket organizations tend to fall in the middle – with the need for some systems to run in the nimble, scalable cloud, and others running in a more cost-effective on-premise scenario.

“Part of the reason we articulate a hybrid multi-cloud vision ... is that there really is a continuum of application deployment, starting with the public cloud, going to the data center, and ultimately going to the edge,” Keri said. “They all have their strengths and weaknesses, and what you really want is for any application and the data you really want to run it in the infrastructure which is best suited for it.”

“Therefore, hybrid is a reality,” he said.