loud-revenue-and-cost-economics

Cloud Revenue and Cost Economics: C-Level Views on Challenges…and Solutions

Melodye Mueller
VP of Marketing & Strategic Alliances
Published:
Sep. 11, 2014
4 minute read

The content in this blog is outdated and we cannot reliably say it is still accurate with the speed in which the cloud industry moves. But don’t worry—below are more recent, up-to-date blogs.

Intuit Takes Cloud Cost Optimization To New Heights With CloudHealth

Gartner Report On Managing Cloud Costs

Breaking Down Forrester’s Cloud Cost Monitoring And Optimization Wave

by Dan Phillips

Over the past 18 months, I’ve talked with hundreds of large SaaS and enterprise organizations discussing their decision making process and needs when deploying cloud infrastructure and dedicating resources to run their business. The top messages that have come through loud and clear are:

  • More than 20 percent of revenue is being spent on cloud costs

  • Cloud adoption for enterprise organizations relies on transparency of data for reporting and measurement against business metrics

  • Cloud-centric organizations are struggling with cost modeling and forecasting

  • Management is looking for easy access to key reports that are critical to running their business

Most organizations find that the ease with which you can spin up cloud infrastructure also means that identifying and aggregating all of the accounts and assets in one place becomes extremely challenging. While the general consensus was that more than 20 percent of revenue will be spent on cloud costs, business leaders were looking for strategies and recommendations to aggregate cloud costs in order to measure, manage and report against organizational goals.

Many of the CEOs and CTOs I spoke with were leading companies launched in 2007 or later. Their business model was cloud centric and strategic to their success. But for many of the organizations their migration to the cloud was just beginning. Their concerns were focused on defining methodologies that gave them assurance, that as they move business-critical applications to the cloud they will have the same level of financial transparency, management and reporting they’ve had in the past. This means easily being able to allocate costs to the appropriate business groups to “see” if their organization is operating efficiently.

Every business model consists of revenue drivers and cost drivers that are generated by products, services and customers. Cloud business models are no different, just trickier to tackle when it comes to tracking revenue generated and the associated costs incurred.

While allocating costs for physical IT infrastructure is a known process, cost allocation in the cloud is an emerging business activity with a whole new set of complexities:

  • Dynamic infrastructure - cloud resources are provisioned / de-provisioned on-demand by the hour and minute.
  • Delegation of control - Lines of business now have direct control over their infrastructure.
  • Pay as you go - Infrastructure is paid for based on consumption, and therefore has an impact on operating budgets.
  • Scale - The cloud has substantially increased the number of assets / resources an organization must manage and report costs against.

 

A recent blog post, “Choosing the Right Cost Allocation Reporting Solution” further discusses these challenges along with requirements for solutions.

The following is a great example of one of my conversations and directly points to the challenge and importance of understanding your cloud revenue and cost economics:

The CFO of a large SaaS company has been trying to align his business revenue with the supporting cloud infrastructure costs. He is looking for a way to allocate shared resources that accurately reflect usage. The challenge has been the ability to collect timely, accurate data on costs and then allocate the costs, assets and resources to customers, products, services, and departments.

The challenge becomes even more complex when you attempt to forecast future costs based on business growth projections. The common theme discussed was that in order to succeed in the cloud, you need a simple, reliable methodology to track, measure and optimize cost, usage, and performance of cloud infrastructure. Ultimately, you need to model and forecast scenarios for your business projections.

Finally, during my discussions with industry leaders, they outlined the business reporting requirements needed for them to be successful. The common thread was that the ability to easily generate both current and historical reports that enabled them to quickly identify anomalies and trends was invaluable for the entire organization. The key is to have visibility into all aspects of your cloud ecosystem and how it dynamically inter-relates with your business model.

Here are top daily, weekly and monthly reports requested:

CEO – Forecasted revenue and cost by product, service, customer and sales pipeline.

CFO – Forecasted revenue and cost by customer, department, P&L, OPEX and COGS, as well as, detailed reports for cost optimization opportunities.

CTO/VP DevOps – Forecasted cost and performance by product, service, environment, role and owner, as well as, detailed reports for performance optimization opportunities.

VP Prod Management – Forecasted revenue, cost and performance by product, service and customer

 

While the cloud may be ushering in a new, more agile way to run your business the fundamentals still apply. You need to:

  • Measure against goals and objectives
  • Identify trends that can impact projections
  • Analyze details and plan based on the facts you gather
  • Forecast for your assets, cost, usage, and performance.

 

Ultimately, the goal is to optimize not only your cloud, but also more importantly, the business.

As I look back on all of the conversations, I can boil it down to a single message - leaders of cloud-based companies are looking for help in simplifying cloud revenue and cost economics management. Fortunately, as cloud computing has matured, so have the supporting services being developed to manage it. Companies like CloudHealth now support many of the largest SaaS providers and enterprise organizations using Amazon Web Services. By delivering an integrated console that aggregates all of the accounts, services, assets, and tools a customer uses, we can provide all of the cost management, cost allocation, usage, performance, metric and security reporting needed for managing complex cloud environments.