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Get to grips with unmanaged cloud spend

This article is the first of a four part series by AJ Witt of ITAM Review and Josh Brazee of Aspera. The series explores concepts & practical advice for managing Cloud deployments to minimise cost and risk whilst maximising value. 

  • Part One – (This article) provides an overview of the cloud market 

to be followed by

  • Part Two – Building the business the case for cloud management 
  • Part Three – The people, processes, and tools necessary for cloud management 
  • Part Four – Practical tips for managing cloud deployments 

Image by akbaranifsolo from Pixabay

In this article series, we’ll look at how rapid unmanaged growth in cloud spend presents a threat to IT departments and organisations. We’ll go on to explore how a modern ITAM team can adapt to address those threats and ensure organisations get the best value from their investments. Cloud is increasingly mainstream and “business-as-usual”, and now is the time for ITAM teams to ensure they grab the considerable opportunities offered by managing these new asset types. This article series equips you to understand the challenge and to address it with team structures, tools, policies, and specific management tips for major cloud providers. For the full whitepaper accompanying the series please click here (no registration required)

Cloud types and their enterprise usage

To understand the challenge it is first useful to understand some of the concepts and jargon around cloud. Cloud is a catch-all label for a variety of different technology deployment types. Predominately we are concerned here with Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS). The fundamentals are the same – you choose to run some of your IT estate using infrastructure owned and managed by someone else, and you pay them for this privilege.

The diagram below highlights the differences in ownership between the main cloud deployment types. The orange boxes indicate which parts of the technology stack are operated by the cloud provider on your behalf.

What is the size of the cloud market and likely growth?

Cloud usage is becoming business-as-usual across industry as highlighted by the following:

  • Over 15% estimated growth per annum until 2021
  • Software-as-a-Service expenditure will overtake perpetually-licensed software spend in 2019
  • Microsoft have added over 2 million active Office 365 users per month every month for the last three years, growing from 60m users in November 2015 to 155m in October 2018.
  • Amazon Web Services (AWS) accounts for 58% of Amazon’s worldwide operating income on just 10% of revenue.
  • By 2021 the total market value is expected to be in excess of $240bn.
  • Salesforce revenue was in excess of $10bn in 2018 and they are seeking to double that by 2022.

This growth highlights that cloud for the large players is highly profitable. It is our job as ITAM managers is to ensure that our organisations receive best value for the profit we generate.

Shifting Cloud Maturity – IaaS in the ascendancy

Whilst the overall market is growing, the share of total cloud spend on SaaS is forecast to lag behind other areas, indicating SaaS may have reached greater maturity with organisations than IaaS or PaaS. IaaS spending is forecast to grow over 150% between 2017 & 2021, compared to just over 90% for SaaS.

Why are vendors and customers focused on Cloud?

Starting with Salesforce 20 years ago, cloud and subscription services have become the preferred sales model for all software vendors. The primary driver behind this is repeatable, predictable, monthly income from software. This contrasts with a sales cycle based on 2-3 year major version release schedules which resulted in greater revenue uncertainty.

In return for committing to a subscription licensing model, customers benefit from access to powerful & flexible computing resources that wouldn’t be practical or cost-effective to purchase and manage in-house.

All mainstream vendor strategies now drive cloud adoption – Azure & Office 365 for Microsoft, Creative Cloud for Adobe, and Oracle Cloud for Oracle. They have also seen their existing markets disrupted by new entrants such as Amazon AWS, Salesforce, ServiceNow, Slack, and Zoom. Salesforce & ServiceNow in particular have transitioned from disrupters to mainstream and now they in turn are being targeted by new start-ups seeking a slice of the cloud pie. With AWS the driving force behind IaaS it is now Microsoft who are hunting them down and posting impressive growth and total market share numbers.

Challenges of cloud

With expenditure on cloud growing at least 15% per annum for the foreseeable future, there is a fundamental need for IT departments to track and control spend on these new environments. IT Asset Managers are well-placed to build cloud into their current operational duties, but this is not without a number of challenges. How to address these challenges will be the subject of the rest of this article series. However, before we get into specific challenges – there are three fundamental shifts that cloud brings to the management of IT departments.

Our challenge is to ensure that we adapt to manage these shifts.

Shift to Opex

Cloud is subscription-based meaning that costs are treated as Operating Expenditure (Opex). In contrast, perpetually-licensed software was often treated as a fixed asset and therefore accounted for as Capital Expenditure (Capex) and depreciated accordingly. Whereas perpetual licenses may have been written off over 5 years, subscriptions are payable in advance. This shift has an impact on IT budgets and investment appetite. Whilst preferences for Opex vs Capex spend vary according to business type and corporate culture, any shift changes the status quo and should prompt debate between CIOs and CFOs.

Wastage

Secondly, cloud expenditure tends to be billed on a per employee basis (SaaS) or per minute basis (IaaS & PaaS). It therefore becomes vital to ensure that subscriptions are being used to their full extent in order to avoid wastage. Wastage of SaaS spend is in the region of 35% – almost $35bn worldwide by 2020[1]. There are typically no refunds for unused capacity or subscriptions. Being able to track cloud usage becomes a vital component in ensuring organisations get maximum value from their investments.

Shadow IT

Salesforce revolutionised how software was sold. They targeted the end users of their software, not the IT or Procurement departments. Many a Salesforce relationship was founded on a Sales Manager’s expense account. They are the grandfathers of Shadow IT, not least because their software required nothing to be installed on users’ PCs and therefore required no IT involvement. With this change comes a raft of concerns around cost and risk management. Are we getting the best deal company-wide? Where is our customer data being stored? Do our users understand privacy laws?

Solving the Cloud Management Challenge

This article has outlined how growth in the cloud market alongside new management challenges creates both a risk and an opportunity for organisations. Risks are undoubtedly increased in terms of wastage and privacy & security. The opportunity offered by cloud may steamroller through those risks, at least initially. However, it is clear that organisations are realising that their cloud spend is unmanaged and out of control – as evidenced by comments around “Cloud Shock”[2]. In Part 2 of this article series we’ll get deeper into the challenges around managing cloud. In Part 3 we’ll highlight how to adapt existing ITAM processes to meet the challenge, before concluding in Part 4 with practical examples of cloud management for a number of large vendors.

For more on practical approaches to addressing cloud spend with a focus on SaaS, please see the Aspera whitepaper on Cloud Cost Management

[1] Zylo, State of Software Management in the Cloud, 2018 https://zylo.com/downloads/2018-state-of-software-management/ & Gartner, Worldwide Public Cloud Revenue forecast 2018 https://www.gartner.com/en/newsroom/press-releases/2018-09-12-gartner-forecasts-worldwide-public-cloud-revenue-to-grow-17-percent-in-2019

[2] Software One, Managing and Understanding On-Premises and Cloud Spend, https://www.softwareone.com/on-premises-and-cloud-spend-survey/

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About AJ Witt

AJ is Industry Analyst for The ITAM Review. He's interested in hearing from end users of ITAM tools and also vendors. You can connect via email (aj.witt@itassetmanagement.net) or LinkedIn. AJ enjoys cycling, music, and spending time with his family.

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