Technologies at war. The great battle moves to the cloud
How much am I spending on the cloud today? It takes only a few clicks for Robert Hodges to find out. He opens a console on a computer in his home office in Berkeley, California, showing cloud spending from his database firm, Altinity, in real time. The cloud accounts for half of Altinity’s total costs.
The Hodges app is a window into the future. As the accounts grow, any firm of any size will need to understand not only the benefits of the cloud, but also its costs. Consulting firm Gartner estimates that spending on public cloud services will reach almost 10% of all corporate IT spending in 2021, up from 4% in 2017. Many tech startups spend 80% of their revenue on services of the cloud, estimate Sarah Wang and Martin Casado of Andreessen Horowitz, a venture capital firm. The situation is analogous to what happened a century ago when electricity became an essential input (and this led some firms to hire another type of CEO: “chief electricity officer”, or head of electricity).
For cloud companies this has been a bonanza. Industry giants like Amazon Web Services (AWS), Microsoft Azure, Google Cloud Platform (GCM), and, in China, Alibaba and Tencent, have been rapidly adding customers. Gardner forecasts that global sales of cloud services closed 2021 with a growth of 26% to exceed US$400,000 million. But the competition is stirring. On December 9, Oracle reported higher-than-expected revenue, mainly thanks to the rapid growth of its cloud unit. Its market value grew more than 15% or almost US$40 billion. And a number of companies are emerging that help businesses manage their computing loads. One of these firms, Snowflake, is worth $108 billion. Another, HashiCorp, went public on the New York Stock Exchange on December 8 and now has a market value of $15 billion, three times its last valuation in 2020 as a private company.
The latest industry developments were on full display at Re:Invent, the world’s largest cloud computing conference, which is hosted annually in Las Vegas by AWS, held last December. The most popular panels included “cost optimization” and “AWS billing.” The expo included booths from startups with names like CloudFix, Cloudwiry and Zesty offering to help customers manage their cloud usage.
The main reason for companies to move to the cloud was never the cost but the “scale”: to have access to additional computing resources with a few clicks. But cloud accounts have gotten more complicated as well as bigger, sometimes rivaling those of America’s notoriously opaque health providers. The AWS bill for even a small customer like the Duckbill Group, another cost consulting firm, can run to 30 pages, detailing the cost of every service you’ve used, from bandwidth in India (a cent per order to their site), to a virtual server in Oregon ($83.59 for “Amazon Elastic Compute Cloud” with open source software).
That’s natural, says Corey Quinn, co-founder of the Duckbill Group. Large cloud providers like AWS, Azure, and GCP are amalgamations of dozens of services. AWS offers more than 200 offerings, ranging from simple number storage and crunching to all sorts of specialized database and AI offerings. Each service is billed according to multiple dimensions, including number of servers, time used, or bytes transferred. Then come the discounts and special offers.
Wang and Casado have suggested that firms should consider building their own private clouds to lower costs. So far few firms have opted for such “repatriation,” which is costly and also makes it more difficult for companies to enjoy the benefits of essentially unlimited computing resources in the public cloud. Rather, companies are trying to professionalize their “financial cloud operations” (“Fin ops” is the acronym by which it is known) by, for example, linking awards to executives responsible for cloud use with control of costs.
At the moment measuring the financial impact of the cloud is an arduous manual process. As the cloud grows, it will need to be automated, says Gartner’s Lydia Leong. Some of it will likely be outsourced to startups of the sort Re:Invent abounds with. A number of them sell a mix of consulting and software tools to assess cloud usage and offer advice on lowering costs. CloudFix, which launched its service in Las Vegas, charges a subscription to use software that optimizes client configuration and performance in the cloud.
The big cloud companies have seen the rise of startups and growing customer complaints. Just before the event in Las Vegas, the company AWS announced that it would begin charging less for data transfer to the Internet, reducing bills for millions of customers. It also helps them identify where they can save, for example by offering a “simple monthly calculator” (although it looks rather complex and has an interface that looks like it’s from the late ’90s).
At Microsoft, Azure cloud costs are often bundled into “enterprise deals,” all-encompassing subscriptions typically favored by large enterprises. GCP, which is the smallest of the top three, “believes strongly” in “multicloud,” says Amit Zavery, a senior executive at the firm. In other words, it aims to allow customers to choose the best and cheapest cloud services from different providers (which makes it easier for them to choose Google).
But big providers don’t make life easier for customers everywhere. That customers pay for the technology they use is the point of cloud computing. At AWS, complexity is viewed as a competitive advantage. Its diversity of services is mostly created by independent teams that can innovate faster (including changes in the collection method). “We decided to let our designers do what they do and unleash their creativity,” says Matt Garman, head of sales and marketing at AWS.
The big three providers also have a habit of making it easy and cheap to transfer data to their clouds but it is also very expensive to remove them from this position. Critics accuse AWS, and to a lesser extent Azure and GCP, of being a digital “Hotel California”, where you can enter whenever you want but never leave. Trapping customers like this can lead them to use other services. Garman says that the higher price of getting data out of a cloud (“egress” in the jargon) reflects the higher costs of that exercise. Almost by definition, customers leave with more data than they entered.
No matter what the truth is, the cloud providers’ fat gross profit margins – more than 60% in the case of AWS according to broker Bernstein – are attracting competition. In September Cloudflare, which helps clients deliver content online and fend off digital attacks, launched a new data storage service that doesn’t charge for digital outputs. Cloudflare patron Matthew Prince says this should “unlock the true potential of the cloud,” allowing companies to mix and match services from different providers. “Each cloud provider has different strengths and weaknesses,” says Prince. Investors still see CloudFlare’s strengths: Despite a recent general decline in tech startup stocks, the company’s $45 billion market value is eight times what it was when it made its initial stock launch in September. of 2019.
If bets like Prince’s pay off, the industry will become more competitive. As for Altinity, its console is a derivative of its product, a cloud database that allows users to analyze information, including accounts, in real time. He is considering releasing the console code for anyone to use and adapt. I hope it goes well for you.