A significant impact of the cloud revolution has been the rise of a subscription economy. Vendors have prospered from this model, and their valuations are now based on recurring revenue streams. The assumption built into these valuations is that customers need the service and continue to pay for it, but there is a real risk that the economic downturn may lead to a shift in this model. Anecdotally we’ve heard that an increasing number of companies are asking their suppliers for a price reduction while maintaining the same services.
In uncertain economic times, there is pressure within all organizations to reduce costs. But approaching a supplier and simply asking to pay less for the same service is unlikely to be successful. Worse still, it is a pretty blunt approach that leaves you little room to negotiate when a supplier responds with a straight out “no.” However, it does raise the question: what can IT do to successfully streamline spending?
Step 1: Examine your IaaS spend
Most IaaS contracts run on consumption-based billing, meaning you pay for what you use each month in arrears. As there is typically no contractual or term limit this is a great place to start to reduce costs.
The first area to look at is waste, where you are incurring charges needlessly. Prime examples include:
- Amazon Web Services (AWS) un-attached Elastic Block Store (EBS) volumes. If you terminate an instance but forget to remove the attached storage, you will keep paying for the storage
- Un-attached IP addresses. You pay for your public IPs, so if you do not need them, make sure you deallocate them
- AWS load balancers with no servers behind them
- Idle Microsoft Azure virtual network gateways
In all of these cases, you need to track down this waste and terminate the services. If you primarily use one public cloud service, using the vendors’ tools like Azure Advisor or AWS Trusted Advisor can be incredibly helpful to identify areas where you can potentially reduce spend. If you have a hybrid or multi-cloud environment with a few different public cloud services, private cloud(s) and/or virtual machines, you might consider a Cloud Management Platform (CMP) that can help you spot these opportunities across these various systems. In one audit, I found $60,000 a month of savings – about 6% of spend – in these areas alone.
Another top item on your target list should be over-provisioning. Load can change, and what was once a correctly sized instance can end up over-specified. By shrinking the size of an instance down to what it actually needs to be, you might be able to make substantial savings. For example, in this screenshot, you can see that Azure Advisor recommends shrinking the size of the machines to deliver cost savings (note that this is an example from a training class). A good CMP can easily pay for itself by analyzing a multi-cloud environment.
The third area is cost optimization schemes. If you know you have workloads that will be running for some time, you can look at reserving capacity with the IaaS provider. This does provide substantial discounts but you will lose flexibility, so be sure you have a long-term need before you start reserving instances. If your spend is significant, then make sure you have investigated the Enterprise Discount Programs (EDP) – this is where the IaaS provider offers you discounts in exchange for committed spend.
Step 2: Examine your SaaS spend
SaaS contracts are more typically signed with a term, committing to spend for one to five years. This makes it hard for you to renegotiate mid-term, so the first action you should take is ensuring you are properly tracking all of your agreements and renewal dates. It’s amazing how many businesses don’t keep an up-to-date record of renewals and thus miss opportunities for renegotiation. One of the terms I always hate to see in a contract is the auto-renewal clause – there is little worse than finding you needed to provide three months’ notice to terminate and missed that deadline.
Once you have visibility of your renewal dates, you should start looking at your usage levels to ensure you understand what your employees are really consuming. All too often a business will sign-up for a specific level of licensing and later find that level doesn’t reflect their needs. Getting more licenses is never a problem but shrinking your bill can be really challenging. A technology intelligence platform or a software asset management (SAM) solution can help identify your usage and potentially be a repository for tracking your agreement dates.
Armed with this information you can attempt to approach your vendor mid-term or wait for the end of the contracted period.
The best approach mid-term is to look for a technology exchange where you try an exchange un-used licenses for services which you would be able to use. It’s also an opportunity to raise questions around payment terms or payment plans. If you do find that all of your licenses are in use but you’re getting requests from other users who want access to the same resource and you’re not making progress exchanging licenses with your vendor, consider re-harvesting. At least in the short term, you might be able to find a few users that weren’t taking advantage of the tool and put it into someone else’s hands in the short term.
Renegotiation at the end of a contract gives you a much better opportunity to push the reset button. But some technology suppliers, particularly the market leaders, have been taking a “take a take it or leave it" approach where they won’t allow you to just shrink your bill for the same services. It may be worth re-assessing why you need that service and figuring out how to get more value out of it.
Step 3: Review your software licenses
While this blog post has focused mostly on cloud subscription models, it would be remiss not to highlight the importance of looking at on-premises software licenses in exactly the same way as SaaS licenses. Again, you need to build visibility of your renewal dates and usage data so you understand what your options are. A SAM solution can help identify your usage as well as track your agreement dates, and a technology intelligence platform like Snow can help you look at usage and spend across traditional software and cloud-based applications. To maximize savings, you want to take the most holistic approach possible across on-prem and cloud technologies.
Step 4: Don’t forget hardware maintenance contracts
While it isn’t cloud, hardware maintenance is another subscription, and another opportunity to optimize costs. Take a close look at what you are paying – when equipment ages the maintenance costs can spiral. This is often a way for vendors to encourage you to migrate onto newer equipment. I have taken two approaches in the past:
- Use a third party who will offer the service for less than the vendor
- Find out what an upgrade will cost. They might surprise you, especially given the need for suppliers to bring in business at this time.
Businesses operating in the “new normal’ after the coronavirus crisis will need to ensure that costs are optimized. The approaches I’ve outlined above seek to improve visibility to ensure that IT spend is carefully targeted with as little waste as possible. These are prime areas for cost savings and the rewards can be substantial for those who get it right.
If you’re looking for more advice on how to rightsize your IT spending, be sure to visit our Essential Resources Center.