Looking to avoid monthly cloud sticker shock? A cloud cost management strategy that makes use of containers, capacity pre-purchases and more will help you contain runaway cloud spending.

Operating your business in the cloud is fundamentally different than operating on premises. And when operations differ, so too do strategies for containing costs.

Financially speaking, a datacenter requires a large capital expenditure for the building, additional capital expenditures for the servers and software licenses, and smaller but significant operating expenditures for powering the servers and cooling systems, and for maintenance and management.

In the cloud, there are no capital expenditures. Instead, there are significant operating expenditures, billed for server virtual machine instances, storage, network traffic, software licenses, and other niggling details.

From a cost management perspective, there are significant benefits in shifting computing load to the cloud — but there are also significant risks.

When someone wants a new server rack in your data center, there are purchase orders to approve and justifications to ponder, and the process is fully managed. It requires permission. It also takes 6 months at many companies. Once the rack has been installed, nobody pays attention to how heavily it is or isn’t used, unless its load is so heavy that it doesn’t perform well. Yes, that’s inefficient cost-wise — hence the push for VMs and containers (such as Docker) in your data center to increase server utilization.

If someone wants a new cluster of virtual servers in the cloud, it might take a few minutes to spin them up. While you might have a policy that requires management approval for new cloud resources or applies quotas to each department’s cloud resources, pretty much everybody with access to your cloud accounts can create what they want when they want, and ask for forgiveness later — if management even finds out.

Whether this freedom is good or bad depends on your point of view. From the perspectives of business agility and devops, it’s good. From the perspective of financial management, it can be good if done right, but otherwise it’s a potential disaster.

In this article, I’ll discuss how to avoid “cloud sticker shock.” I’ll start with individual technical tactics for optimizing cloud expenditures, and end with the topic of cloud spending management.
Asset utilization

According to Michael Liebow, global managing director of Accenture Cloud, cloud services can lead to a “zombie apocalypse” — not human zombies, but zombie servers. Zombie servers have little or no utilization: They cost you money but don’t do much of anything.

Liebow and his colleagues also write elsewhere about orphans, which are services left over after the resources that used them have been deleted, and gluttons, which are oversized VMs. These three pathological conditions can easily inflate your cloud bill by 20 to 40 percent, if not managed properly.

Finding underutilized assets in the cloud in a timely manner isn’t easy or automatic. Bills from cloud providers only come on a monthly basis, and may contain more than a hundred million lines of charges for a large enterprise with a sizable cloud estate. If you wait until you get the bill to act, you may find steep charges for VMs and other services that have been idle for 30 days and should have been shut down or downsized long ago.

Customers have the flexibility to change the Availability Zone, the instance size, and networking type of Standard Reserved Instances. Convertible 3-year Reserved Instances provide additional flexibility, such as the ability to use different instance families, operating systems, or tenancies over the Reserved Instance term.

Azure has a similarly sized VM (fewer CPUs, more RAM) in its general-purpose D32-v3 instance, which offers 32 virtual CPUs and 128GB of memory and costs $1.60 per hour on demand. Azure doesn’t offer reserved instances as such: Instead, it offers an Enterprise agreement with an upfront monetary commitment that lowers the price, although the discount levels are not published.

Google offers an n1-standard-32 VM with 32 virtual CPUs and 120GB of memory for $1.52 per hour with a monthly sustained use discount. You don’t have to commit to extended use to get a sustained use discount: Instead, it is applied automatically to the incremental minutes over the 25%, 50%, and 75% usage levels.

Google also offers a committed use discount for VMs, which you can activate by purchasing commitment contracts for one or three years. Any resources that have committed use discounts applied do not qualify for sustained use discounts. With committed use discounts, VM prices can be up to 57% less expensive than regular VM prices. Discounts apply to the aggregate number of vCPUs or memory within a region so they are not affected by changes to your instance’s machine type. There are no upfront costs for committed use discounts. Committed use discounts are applied to your bill every month. The catch is that you are billed for your commitments whether or not you use them.
Spot and low-priority instances

Amazon EC2 Spot instances allow you to bid on spare Amazon EC2 computing capacity. Since Spot instances are often available at a discount compared to on-demand pricing, you can significantly reduce the cost of running your applications, grow your application’s compute capacity and throughput for the same budget, and enable new types of cloud computing applications.

Spot instances are run when your bid price exceeds the Spot price, and offer 50-90% discounts compared to on-demand instances. With Spot instances, you will never be charged more than the maximum price you specified. While your instance runs, you are charged the Spot price that is in effect for that period. If the Spot price exceeds your specified price, your instance will receive a two-minute notification before it is terminated, and you will not be charged for the partial hour that your instance has run.

If you include a duration requirement with your Spot instances request, your instance will continue to run until you choose to terminate it, or until the specified duration has ended; your instance will not be terminated due to changes in the Spot price. At the moment I checked, a Spot instance for a c4.8xlarge VM with Linux costs $0.3591 per hour in the N. Virginia zone, compared to $1.591 per hour on-demand.
It’s even harder when you have to manage multiple clouds with multiple accounts each. The good news is that you can usually pull billing information from your cloud providers electronically on a daily basis; the bad news is that you may need to license or develop new tools to manage your cloud estate.

Capacity pre-purchase

One way to reduce spending on cloud resources that you expect to use for one or more years is to pre-purchase your base capacity at a discount. Each cloud provider does this a little differently, and changes its billing policies periodically. Be warned: This is a confusing area, even when the provider claims to be transparent about pricing.

Amazon explains its pre-purchase plan as such:

“Reserved Instances provide you with a significant discount (up to 75%) compared to On-Demand instance pricing. In addition, when Reserved Instances are assigned to a specific Availability Zone, they provide a capacity reservation, giving you additional confidence in your ability to launch instances when you need them.

“For applications that have steady state or predictable usage, Reserved Instances can provide significant savings compared to using On-Demand instances.”

Amazon recommends Reserved Instances for:

Applications with steady state usage
Applications that may require reserved capacity
Customers that can commit to using EC2 over a 1- or 3-year term to reduce their total computing costs

As a concrete example, consider a compute-optimized c4.8xlarge VM instance in the N. Virginia zone running Linux, which costs $1.591 per hour on-demand and offers 36 virtual CPUs and 60GB of memory. If you reserve the instance for a year and pay entirely up-front, your rate goes down to $0.947 per hour, a 40% savings. Do the same for a standard 3-year term, and the rate goes down to $0.621 per Hour, a 61% savings. For a convertible 3-year term, which allows you more flexibility, the rate is $0.739 per Hour, a 54% savings. Pay less up front, and the effective rate goes up a little, but the difference is roughly in line with the time cost of money.