Dive Brief:
- Most software vendors struggle to manage cloud costs, according to a Tuesday report published by CloudZero. The FinOps solutions provider drew on a survey of 700 SaaS companies conducted by research firm Benchmarkit.
- Three in 5 software vendors have not implemented a cloud cost management program, the report found. Nearly three-quarters of respondents said cloud represents at least 20% of their total costs of goods sold.
- “For SaaS companies, the cloud is typically a top-three budget line item — yet most don’t have rigorous processes for managing their cloud efficiency or understanding the relationship to their unit economics at any level of granularity,” Phil Pergola, CEO of CloudZero, said in the report.
Dive Insight:
Companies across industries have felt the sting of spiking cloud costs as they adjust to usage-based billing models and grapple with tying cost to value. Cloud-native SaaS vendors are no different, according to the report.
Nine in 10 surveyed companies admitted they can’t trace at least 10% of their total cloud spend to the right source. Of the 39% of respondents with cost management processes in place, just over one quarter have optimized software code and less than half have enabled chargeback processes that deduct cloud spend from departmental budgets.
Linking cost to a specific unit is complicated by the array of disparate cloud services companies consume, as well as the prevalence of shared resources, multiple cloud providers and containerized workloads.
Without a clear picture of who to bill for which service, cloud consumers can’t even begin to optimize usage — a key feature of FinOps cost management practices.
Most software companies lean on hyperscaler discounts, bulk-rate pricing and third-party resellers to economize in cloud, which can lead to overprovisioning. Only one-quarter of respondents said they regularly use cut-rate spot instances to reduce spending.
When technology providers spend more on cloud, costs generally trickle back to enterprise customers by way of price increases.
Nearly 80% of U.S. organizations shouldered software price increases over the past year, according to Forrester. Most executives attribute the bump to novel software features, including AI.
While AI development is one likely culprit for cost increases, cloud is where large language models are trained, tuned and accessed. If SaaS vendors are overpaying for cloud, they can let those costs erode revenues or pass those bills down the food chain by bumping up the price of their products.
