The cost of cloud: what you need to know

A handful of cloud providers have a hold over much of the cloud market and are often the “by default” choice of customers. This begs the question: “Why are we using this specific cloud?”. It’s a good question, as there is not one cloud but multiple clouds with different approaches and different business models. Not all providers offer an ecosystem approach based on partnerships, nor do they service products that are interoperable or reversible. Not all providers guarantee data compliance. And crucially, not all have price transparency.

Many startups and scaleups view cost as their top priority, and so it should be. As this blog indicates, many companies have overspent on cloud in recent years due to a lack of understanding regarding vendor pricing models. Cloud pricing can be complex. It is therefore difficult to compare pricing across providers and products.

Unpredictable cloud pricing is affecting the valuations of listed software companies significantly. This is stated in an article by the well-known Silicon Valley venture capital company, Andreessen Horowitz. The article is titled: The Cost of Cloud, a Trillion Dollar Paradox. The article highlights the incredible value that cloud – specifically, Public Cloud – offers. In the early stages of growth this is most obvious – where flexibility and scalability play a key role in replacing large upfront capital expenses with more manageable operating expenses. However, the article goes on to explain that as these scaling companies progress into later stages, the cost of cloud grows to become a significant portion of their total cost of revenue. This starts to affect public company valuations to the order of $100 billion across the 50 top public software companies. In short, the reduction on margins from cloud can start to outweigh the benefits and because companies are only considering this issue later in their development, reversing their infrastructure decisions can become very difficult.

Good news

The good news is that companies like Dropbox are shifting cloud workloads and experiencing significant cost savings. There are also now flexible, scalable Public Cloud alternatives that can be considered in the later stages of company development. Where providers like AWS, Azure and Google Cloud focus on providing Public Cloud, OVHcloud offers a number of cloud solution options that include Public Cloud as well as Bare Metal or Dedicated Servers. You can read more about these three cloud solutions in another blog article here!

In summary, good planning and anticipation is key. While Public Cloud offers the flexibility, scalability and managed services at a price premium, Dedicated Servers provide the customer with access to dedicated hardware, granting total control but with fewer managed services. This comes with price benefits and provides the most opportunity for performance and customization which can be a very useful way of managing cloud costs as your company develops. That way a business can act early, stay on track, and incentivise the right behaviour with IT teams.

As you plan your cloud journey, here are some key takeaways for startups:

Plan you cloud future: For startups and scaleups, use the flexibility and scalability of Public Cloud in your early stages but work with cloud provider engineers as early as possible to start thinking about how you could move future workloads to more sustainable infrastructure like Bare Metal or Dedicated Servers.
Track your cloud spend: For startups and scaleups, but also for Startup Program partners or those working with startups and scaleups (VCs, business incubators, accelerators), identify costs and monitor them. The message is to make cloud spend a key performance indicator. If it is measured it is easier to act when expenses blow budgets or look unsustainable. Your business model and viability may depend on the tweaks that you make.
Check your cloud provider: Cloud users need to carefully consider that their cloud provider has the necessary short, medium, and long-term cloud solutions for them to have transparent, predictable pricing models. This way the cost of cloud can be easily and accurately predicted and measured. Because sustainable cloud costs ultimately may mean moving significant amounts of data, bandwidth cost implications should also be considered. The adoption of open standards is a great approach as it usually provides greater interoperability and reversibility when infrastructure changes are needed.

As a startup or scaleup, one of the best ways to benefit from the cloud and to try and compare different cloud providers with lower risks is to join a cloud provider startup program. These programs will often offer credits to access cloud solutions, as well as support. OVHcloud, as a leading European cloud hyperscaler and with cloud and infrastructure experience for more than 20 years, offers such a recognised startup program, also providing some of the best cloud price/performance ratios on the market as this page can attest.

But don’t take our word for it. Challenge the status quo. We hope these elements will help you understand better the fantastic world of cloud computing, as well as its opportunities.