E08: Cloud Adoption Is Accelerating Amidst Rising Energy Costs

On this episode of Cloud Cost Optimization, Nick and Jason discuss two recent articles from Reuters and CNBC that discuss companies' increasing reluctance to spend on cloud and the move to cloud amidst rising energy costs respectively. CIOs are being told to stop spending with the biggest concern being the month-over-month, year-over-year increase in cloud spend. Then, Nick and Jason discuss the possibility of data centers getting repatriated and the price stability of cloud, primarily due to competition.

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Show Notes

What's up everybody? This is Nick from tenacity.ai with my co-host Jason, and you're listening to the Cloud Cost Optimization podcast. Today we're gonna talk about some of the, uh, articles, uh, that we've read recently. Writer specifically, I'll, I'll link it in the show notes, but talking about. You know, where AWS and Azure are from an expectation standpoint, what are the indicators of cloud spending, uh, and what's going on from kind of a inflation and, and pressures on it and it spending, uh, in the industry?

So I guess first, uh, Jason, you know, we, we, uh, talked about this a little bit earlier off, uh, off mic, but, uh, you know, recent article, uh, from October 27th, uh, Reuters, you know, tech giants feel pain of, of cost spending. Uh, you know, cuts suggest a slowdown. And so we're seeing that AWS and Azure both missed expectation for q3.

Um, and both are significantly down from last year's, uh, uh, expectation as well. Uh, in, you know, this does look like a clear indicator of organizations are focused on, you know, cloud spending and cloud spending cuts optimizing their environments. Uh, uh, certainly I don't, I don't think we're seeing an indication yet of any.

Repatriation. Uh, though we could talk about that, but I think we're seeing, you know, potentially more of a focus Yeah. When the economy slows down. I mean, I think we should point out that, that some of the reasons they missed their expectations is because of what happened throughout the, over the course of the pandemic.

I mean, AW, AWS is operating profit alone, double over the pandemic, and so some of their forecasts are based. The amount of cloud spend that that went in, the amount of cloud, the, the sheer amount of cloud spend that was increased during the pandemic. And so, um, I also think a part of this is not just that people are fearful of maybe what the economy might do, although it's kind of weird cuz the economy's not in as bad of shape as everybody's thinking it is right now anyway, in a lot of ways.

But that. People are spending a lot more on cloud than they were three years ago. a lot more on cloud by and large, and uh, and people don't know where those costs are going in the cloud or why that's a, that's a big problem as well. And so when you're fearful of something and when you don't know what's going on and all those other things, what do you do?

You start to pull back, right? You start to. You start to get fearful of what's going on, Why is it growing? Where are all these costs going? Um, and so I think that that's a, a lot of what's happening right now is it's not necessarily rep repatriation, but it's, you know, companies are spending a lot more than they were in recent years.

They don't know where things are going and they're telling their CIOs IT teams to stop. Oh, spending is the first thing they're saying. Just stop spending. Right? It's just like, we need to stop spending more in the cloud. That's the first thing they're telling them. And the second thing is they're, they're telling 'em to look for ways in which you can cut because that's the next step.

But the biggest concern is just the month over month, year over year, you know, increase in, in cloud spend. And a lot of that was due to the. Well, I, I think you and I have both experienced this too, and you're in a growth organization and we both, we both have a history in, in being in stage two companies and in being in growth mode.

We've had, uh, uh, I'll call it the delicious economy for, for quite a while. Uh, that's been ripe for growth and has plenty of cash. And so these organizations, when when you're in growth mode, you are not worried about your. You're worried about how do I keep up? And when, you know, as we, as we roll over that curve, um, that is, you know, it's, it's at that crest that, that you start thinking about, Well, wait a minute, why are, you know, what are all these costs?

What's, what's going on here? Uh, so the bend in that curve back towards something that's, you know, hopefully not falling, but is, is starting to, uh, normalize or, or stabilize, uh, that's when you really. Getting a focus on, you know, the, the drivers of, of EBITDA and, you know, cloud's gonna be a big one of those.

And, you know, just, just as we talked about in, in our past, uh, uh, episodes here two episodes ago, uh, that, you know, you, you. You want to be aware of kind of where those costs are being allocated out inside of the organization so you can start kind of, you know, managing them. This, this is a really important time to do that when you've just gone through tremendous growth.

Can I go align those costs to the growth drivers, to the revenue drivers and then, you know, where can I actually manage my cloud spending? I, I think that's probably what these numbers are an indicator to me anyway. And, and it seems to be, you know, that's sort of what. The writers of the article are saying as well, is that this probably has a lot more to do with, with, you know, organizations coming to the realization that they've, they've been through the feast.

It's now time to, you know, tighten the belt a bit as a reaction to what's going on economically or globally. Yeah, I mean, I think you get, I think of, um, , You know, when you're in the middle of an IT issue, right? And you're, uh, you're trying to troubleshoot a problem that's affecting maybe lots of customers or lots of end users, right?

You're doing a whole bunch of things. You're making changes, you're trying to figure it out. You're doing all this, and then there's a. , then you finally get it fixed, right? And the next thing you really need to do after you take a breath and do that is like, figure out everything that you did and clean it up, right?

I mean like, cause you made a bunch of changes that you know, you know are messy, right? I mean, you've, we've all been in these situations before and so there's a period of time afterwards in which you might schedule it out, right? It, it might affect customers, this cleanup, whatever it is, but you rec, you've, okay, we figured out what the problem is.

We fixed it. What did we do? What mess did we create while we were troubleshooting? Now we have to go clean it up and make sure, and then make sure we rectify the problem. It's the same thing. The pandemic people pushed everything into the cloud because it was the right thing that they were troubleshooting a problem.

I've gotta get people working from home right away. One of the problems they were troubleshooting, they got 'em all working. Now it's a little bit different because the time period is much different because now we're talking about months, maybe a year as opposed to just hours or days with a, with a technical problem.

But it's a similar thing. It's time to go clean up. It's time to look at all the changes you made, understand why you made. Figure out what you need to keep, figure out how things should be running. Maybe it's refactoring, maybe it's optimiz, whatever those things are, right? Maybe it's leveraging commitments, but, but it's time to take a look at what you did that got you to here, do the cleanup, right, Which can be a litany of different things and, and then, and then set a new standard going forward because it's not coming out.

You're not repatriating data, it just doesn't make any sense to do so for like 99% of the, Yeah, if you're Netflix and you need to store, you know, a billion petabytes of data close to users, okay, it probably makes sense to put that on your own infrastructure, but Netflix owns half of the. Do you? No, most companies shouldn't.

They should be looking at where they can optimize. They should be looking at understanding and where they can optimize and manage better. Well, I think if we, if we go to the data, you know, again, looking at the question of, of repatriation are, are folks actually moving outta the cloud? I, I don't see this pattern, number one, not in our consulting, not in, in, you know, uh, tenacity either.

Where, you know, what we also have to understand is the economic drivers and pressures on, uh, costs of, you know, running and manag. Uh, a data center or a footprint, you know, in a data center, you know, power costs, energy costs are upright. Now, I, I saw one quote, uh, from another article in which, again, we'll link this in the show notes, CNBC of, you know, uh, organizations seeing 65% increase in energy costs, and that's their motivator for moving to cloud.

Because, because cloud costs are much more stable, uh, than, than these inflationary costs, uh, due to competition inside of the data center. That's right. Again, due to competition, because there is no competition in the utility space, right? It is. It is. No, I can charge you what I. I mean, I, I, it's written into my contract that I can escalate whenever I want, or I can escalate your prices whenever I want based on market factors, right?

Because it's a global commodity where, uh, you know, a widget inside AWS or Azure is a, um, you know, competitive market. And so, you know, if their power, you're paying them also for the insurance that your power. Don't increase the cost of your by, by the same amount, right? Because they still have to keep up with the prices that Azure, AWS has to keep up with Azure, they have to keep up with Google, they have to keep up all these companies, and so they would have to collude to increase your prices based on their power costs increasing, right?

They would all have to do it, which doesn't really happen. In fact, we, I don't, We have not. cloud prices go up over the pandemic, not as a result of power. Prices gone down. Yeah, it's gone down. Right. In fact, it's gone down. So yeah, I think that's part of the reason why we don't see a lot of it. Um, really first you really have to have a good.

Use case like a Snapchat or you know, a Netflix, there's these cases of repatriation. But, you know, Snapchat's, AWS bill was more than their revenue at one point. And so that, that's a little bit of a different problem. And so I think, um, that it's not, the grass isn't always greener. Um, and the benefits. The downsides, and I really do think it's more about understanding what you have, why you have it, and if you should have it.

And if I do need it, how can I make sure that it's optimized? Then it is about moving something somewhere. Because you're right, the power costs we're talking about in, okay, power costs. Let's say you can get over that. Go try to buy a server, right? It's , It's not the same market as it was before the pandemic because the cloud providers were the ones primarily buying infrastructure servers through the pandemic.

And so the amount of options you have are a lot lower. Um, the chip, the shortages due to lack of trade policies. I mean, there's so many other things that are difficult about moving stuff out of the cloud that I think people don't really think of when they go to. Well, I think, I think it's important in, in, uh, we'll have to, we'll have to wrap the topic here.

Um, I think it's important to remember that the global economic pressures that are on the cloud players are on the everything else. And so it's not, Um, what we're seeing in the numbers tell a story, uh, what that story is, you know, is, is what we're, what we're gonna try and interpret. And I, I think the story we're seeing right now, as you said, is not a repatriation effort.

I think what we're seeing in the story is, uh, a focus on some cloud spending on getting optimization, right? We're coming out of this acceleration, uh, You know, a a time period and, uh, now we're moving into the, Okay, I gotta understand what I have. I gotta tighten my belt. But folks are still mass transitioning to the cloud, and I think we're gonna see, um, if I were, if I were to look into crystal ball or, or try to try to predict the future, I think we'll continue to see an acceleration there.

Um, Because all those global pressures are gonna affect things like utility. So, uh, we'll continue to see that adoption drive, uh, uh, adoption drive in cloud, driving towards, you know, greater adoption. Um, any parting thoughts, Jason? Nope. Let's go. All right, sounds great. That's it for today's, uh, show. Uh, visit us at, uh, tenacity.ai.

Uh, reach out to us on LinkedIn. Uh, happy to answer any questions. Love to have you on the show. Uh, that's it for today, folks. Thank you.