Alyson Behr - August 14, 2019

Cloud-Native Costing: How to Avoid Sticker Shock

How to avoid the sticker shock and surprises of going cloud-native? Compare your cost models and complete due diligence

Moving to the cloud will bring operational cost efficiencies, among other benefits, or so many evangelists espouse. That could be the case, but not necessarily, especially if you don’t keep an eye on pricing and costs. Running cloud-native requires scrutiny since the cost models of traditional, legacy development differ greatly from the new world order of cloud-native development models.

It starts with the chart of accounts

Traditional, legacy cost models have a different chart of accounts than cloud-native. That's key. Try to think of it in terms of what’s in the existing chart of accounts. What line items are you currently tracking? It might be things like power costs, infrastructure costs, and maintenance costs for software and hardware. These line items lie in the traditional on-premise world. In the cloud world, there are unique and different costing and pricing line items. They're more complex because they have to include potentially different variations based on service level agreements, resiliency models, security models, and add-ons such as disaster recovery.

The cloud-native set of line items is necessarily more complex because everything is purchased as an individual service. For example, think about things like security. Additional security tools that are unique to the cloud are required because you are connected directly to the internet as part of connecting up to the cloud. This is a significantly more risky way to connect.

New line items

Typically, one of the highest-priced line items is connectivity. If your organization deals with a lot of data, it's not uncommon to need an expensive high bandwidth direct-connect to the cloud provider, which might be thousands of dollars per month. On top of that, it's not free to migrate those apps to the cloud. Steven Woodward, CEO of Cloud Perspectives recommends, “Don't start even thinking about migrating your legacy applications to the cloud until you've got significant field development experience, because otherwise, you're going to have some real sticker shock. Honestly, it's going be disheartening, because moving things over might cost you $2m to $3m dollars to move one application.” This is because it has to be more secured and re-architected to work well. He adds, “You can maybe lift and drop the application into a cloud environment fairly cheap, but then the performance is going to be horrible, and all of your customers are going to be unhappy, and it's going to be unsecured.” It's a major investment that has to be taken seriously, cost seriously, and planned seriously. New line items in your cloud-native chart of accounts include staffing costs that will be on-going.

That said, cloud-native can save a lot of money when it's a good fit. SaaS products are no different from commercial off the shelf solutions. Woodward points out that if businesses are willing to change their processes and their workflows to use the “in the box” functionality from SaaS providers, the business can see substantial savings. He says, “It’s not uncommon to only spend 10% of the money in order to get the same amount of functionality in the hands of the end-users. You're doing it in a matter of days as opposed to months or years. Great advantages.”

Beware of customization costs

Where people get burned is when they say, "That's great." It's a SaaS product, I like it, but I don't like this, and they start customizing it. As soon as that happens, savings quickly erode. The key is to take things, use them “as is” as much as possible, using configuration, just settings values, and doing configurations rather than customization. Woodward suggests, “Keeping it simple, using it out of the box, you can see tremendous savings.” But he says, if businesses start customizing, it’s not uncommon for the actual cloud solutions to cost them two or three times more than on-premise.

Calculate the ROI on cloud-native

Woodward uses the total cost of ownership (TCO) or total cost of service usage over a five year period when he’s doing analysis. He says, "I want to know the TCO and service usage for the on-prem solution, as well as the cloud solution, and I include everything that should be included within that chart of accounts, including moving out of the cloud. I also make sure there’s an exit strategy cost line item, so I’m not getting locked in.” There are cases when the cloud provider may be bought out by a competitor, or by a company that resides in a country where you're not comfortable using that product. It happens. As part of this scenario, consider the cost of exiting away from a particular provider. Just in case.

What’s key in making informed decisions is taking the time upfront to create a comprehensive cloud-native cost model for your organization, then examine it against your current cost model. Make sure you’re complying with all the new regulatory requirements.

In most cases, the savings can be realized when there's a good fit. At the same time, if it's not a good fit when you're doing that analysis upfront and you can recognize, "Hey, this is not a good fit, let's leave it in legacy.” Woodward points out you need to perform appropriate due diligence and analysis. Make sure the decisions you're making are ones you're going to be happy with in the future.

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