Originally published in MSP Today
The cloud is currently one of the most significant technologies on earth, pre-dating digital transformation by a couple of decades but rising to the necessary level for enterprises amidst the current digital revolution. The technology is profoundly impacting businesses and consumers alike, regardless of industry or occupation, yet is even more deeply influencing the fast-growing Managed Service Providers (MSP) sector, in particular.
Originally, MSPs feared the cloud would erode their revenues and make their businesses obsolete. Given that, it’s not surprising the cloud was initially slow to catch on among MSPs. This couldn’t have been further from the truth – or current reality – however and, today, adopting cloud technology has enabled MSPs to establish and secure their clients’ modern workplaces with solutions that provide advanced automation, communication, and collaboration capabilities and enhanced security features.
However, cloud technology is not without its challenges and drawbacks for both MSPs and their small and mid-market customers. Security concerns, interoperability and flexibility, compliance, and lack of knowledge/expertise are among the top cloud-related obstacles.
But, there is no other greater problem when it comes to cloud than inefficient allocation of resources and spending. Cloud waste averaged 30 percent of companies’ cloud budgets in 2021, with that figure jumping to 32 percent by the end of 2022.
According to the most recent Flexera annual report on the cloud, based on thousands of interviews they conduct each year, the number one problem is controlling cloud expenses – and this issue has remained in pole position for seven years. Why is it that so many organization leaders continue to name runaway cloud expenses as their top concern – consistently – for seven years running?
“Not only is cloud infrastructure changing, the sheer amount of very exciting cloud-based applications is growing,” said Ben McGahon, founder and CEO of Kalibr8, a cloud-native, AI-driven software platform that ingests and analyzes data to identify previously hidden causes and trends that result in over-spending on VMs, cloud compute, cloud storage, and licensed cloud-based business applications. “There’s an urban myth going around that makes it appear ‘digital transformation’ is a one-time thing when, in fact, true DX is an ongoing evolution. The more value MSPs see in the cloud – which has the potential for them to build extremely attractive and competitive businesses in a world where organizations prefer to have experts run their infrastructure – the clearer it becomes that they can only be relevant when they are truly cloud experts and have the modern tools to ensure their customers are not overpaying for what they don’t need, freeing up money for what they do.”
This widespread inefficient cloud spending has led to the inception of a term known as “Bill Shock,” which is defined as the act of opening one’s cloud bill and experiencing the five stages of grief: denial, anger, bargaining, depression, and acceptance.
“Bill Shock happens when businesses invest money in cloud services but don’t accurately forecast ongoing costs and usage,” McGahon said. “Most services are billed monthly, so by the time the problem is highlighted, costs can reach a significant amount, and for those individuals or teams responsible for ensuring a healthy bottom line who don’t have time to pay attention each month, the problems pile up until they are so severe that MSPs risk losing customers who thought their MSP had their back. Bill Shock for one customer is one thing, but when MSPs don’t take on the systemic lack of cost control for all their customers, and cost control for the cloud consumption they use to run their business – the results can be chilling.”
Generally, when bill shock happens, there are two main culprits. Either services were turned on and left running when they weren’t required, or services were scaled up without a full understanding of cost implications.
For example, with the first culprit, a common scenario is when someone forgets to switch off a virtual private server (VPS). This can occur when a user forgets to switch off a VPS, expecting that the provider will turn it off on their own or that a notification will be given when the timer expires. It is not automated, and either the MSP or the client enterprise must terminate instances manually if they do not want to be charged.
As for the second culprit, scaling up services without a full understanding of the cost implication can be even deadlier, such as with the cost of data traffic. For instance, if outgoing data cost nine cents per gigabyte, downloading a 16GB file would cost $1.44. However, sharing the download link with an entire company, where it can then be downloaded more than, say, 1,800 times, would end up costing $2,600, a hefty hit for any company not realizing how quickly the price tag can accumulate with the amount of data being accessed.
“Our team comes out of the MSP industry, and we saw this coming a few years ago, which drove us to build a platform that, with very little human intervention required, keeps track of and automatically calibrates cloud consumption that keeps budgets in check,” McGahon said. “We’re turning the cloud into a true ally and creating opportunities for MSPs to grow their revenue and deepen their relationships with customers for years and decades to come. If MSPs do not themselves become FinOps providers, they will wake up one day to find a whole new breed of FinOps-as-a-Service companies that will point out to their customers that the unnecessary waste is something they can tackle, leaving MSPs in a very uncomfortable position.”
Cloud Optimization technologies from companies like Flexera and Kalibr8 are gaining a strong foothold, which is not surprising given the amount of enterprises leveraging the cloud. The global cloud management platform market size is expected to grow from $14.24 billion in 2022 to $17.15 billion in 2023 at a stunning compound annual growth rate (CAGR) of 20.5 percent.
Beyond this year, the cloud management platform market size is expected to grow to $35.2 billion by 2027 at a CAGR of 19.7 percent.
These platforms can offer MSPs and their clients the tools and automation capabilities necessary to lower their cloud spending and reduce their bill shock. For example, a cloud optimization platform could find unused or unattached resources, which is the easiest way to cut cloud costs. This is the exact solution to a forgotten VPS or, in other situations forgetting to remove storage attached to instances that were terminated. A cloud cost optimization platform can start by identifying these unused and completely unattached resources and removing them.
“Our platform can also help MSPs stay ahead of cloud sprawl by enhancing visibility across all environments,” McGahon said. “With application monitoring and management automation built into our cloud optimization platform, MSPs and enterprises can set up company policies on how and when to decommission cloud resources that are no longer needed and use automated provisioning to shut down old workloads. These can also help identify the optimal balance for workloads, make the most of cloud capacity, and prepare MSPs and their customers to get even more value out of the cloud, without the Bill Shock that is shaking up the business world today.”
When it is all said and done, no organization, MSP or otherwise, wants to open up their cloud bill and see a number higher than they were originally expecting. In a world where efficiently leveraging the abundance of available technology can set enterprises apart from others, cloud Bill Shock not only increases expenses but echoes the idea that one’s business is falling behind the competition.
“This is a matter of survival and an opportunity to be great,” McGahon said. “That is our message to MSPs who have had to work for 20 years to stay in business, stay relevant, and grow. The MSPs who are not keeping up with the times are losing out – and losing customers. By becoming the expert and the advocate and by bringing the smartest, most automated, and most effective cloud confidence to their customers, MSPs become more valuable and less vulnerable to the inevitable churn that will happen when they don’t jump at the chance to be even more meaningful as Bill Shock continues to climb.”