Cloud Computing Isn’t as Cost Effective as Hoped. So What’s Next? | WSJ Tech News Briefing

Summary

In this Wall Street Journal tech briefing, Zoe Thomas explores the rising costs of cloud computing for businesses. A KPMG survey reveals that many senior tech leaders in the U.S. have not seen the anticipated returns on their cloud investments due to rushed transitions and lack of strategic planning. The initial promise of only paying for what you use has led to unexpected expenses, particularly with multiple cloud providers. As companies reassess their cloud strategies, the outlook remains positive, though growth has slowed post-pandemic, and IT leaders must justify their cloud expenditures amidst economic uncertainties.

Takeaways

• 😀 Companies rushed into cloud adoption without strategic planning, leading to unexpected costs.
• 😀 Approximately two-thirds of senior tech leaders at U.S. firms haven’t seen significant returns on their cloud investments, according to a KPMG survey.
• 😀 The initial cloud pitch promised cost-effective solutions where businesses would only pay for what they used, allowing them to scale up or down based on demand.
• 😀 Many businesses ended up paying for the same services on multiple cloud providers, leading to redundant costs.
• 😀 The cloud migration rush was accelerated by the pandemic, causing companies to move quickly without optimizing their usage or considering future costs.
• 😀 Cloud providers initially offered solutions where businesses could rent server space instead of maintaining on-premise data centers, with the promise of flexible scaling during peak demand.
• 😀 Over time, businesses realized that using multiple cloud providers for different capabilities caused more complex and expensive setups, requiring the rebuilding of applications.
• 😀 Companies are now focusing on reducing costs by evaluating the tiered services offered by cloud providers and avoiding over-paying for higher-level capabilities.
• 😀 Businesses are taking steps to avoid duplicating services across different cloud platforms to reduce unnecessary expenses.
• 😀 The future of cloud computing is still strong, but businesses are now adopting a more cautious and strategic approach, understanding the full cost implications and adjusting their cloud strategies accordingly.

Q & A

What are the primary reasons companies are experiencing higher cloud costs than expected?

Many companies rushed into cloud adoption without strategic planning, resulting in duplicated services and unnecessary expenses. The quick migration during the pandemic also contributed to these oversights.

What was the initial pitch made by cloud providers to businesses?

Cloud providers promoted the idea of renting server space instead of maintaining on-premise data centers, promising that companies would only pay for the computing resources they actually used, allowing for easy scaling.

How did the pandemic influence cloud migration strategies?

The pandemic accelerated the push towards cloud adoption, with many companies hastily migrating data and applications to the cloud to accommodate sudden increases in demand.

What issues arose from companies using multiple cloud providers?

Companies found that many applications were built specifically for a single cloud provider, which led to increased costs as they had to rebuild these applications to utilize services from multiple providers.

What steps can businesses take to manage and reduce cloud costs?

Businesses can reassess their cloud service tiers, moving to lower-tier services where possible, and ensure they are not duplicating services across different cloud platforms.

Is there a trend towards companies pulling data back in-house instead of using cloud services?

No, a complete reversal of cloud adoption is not expected. Instead, companies are entering a more strategic phase of cloud migration, focusing on cost management and efficiency.

What is the current outlook for the cloud industry?

While there is still strong interest in cloud services, the explosive growth seen at the beginning of the pandemic is leveling off, and economic uncertainties may pressure IT leaders to justify their cloud investments.

How has the perception of cloud investments changed among IT leaders?

Many IT leaders now realize that the costs associated with cloud services can be significant, leading to a more cautious and informed approach to cloud investment compared to the initial rush.

What was the significance of the 'Black Friday' example mentioned in the discussion?

The 'Black Friday' example illustrates how cloud services can automatically scale to meet sudden surges in demand, which was one of the key selling points for businesses considering cloud migration.

What role do economic conditions play in cloud computing budgets?

Economic conditions, particularly potential recessions, could lead to IT budgets being slashed, making it crucial for IT leaders to demonstrate a clear return on investment from their cloud expenditures.