We’re witnessing a new cloud boom. Thanks to Generative AI and traditional AI, cloud spending is unmanageable and surging to new heights — up 30% over last year alone. Without the help of a third-party FinOps software or cloud cost management platform, companies are more likely to struggle in keeping their IT budgets on track.
These are some of the key findings of a new research study performed by Vanson Bourne, which surveyed 500 IT and financial leaders about their cloud spending trends and most successful FinOps practices. Here’s a look at the key findings.
Cloud Spending Trends: Up, Up, and Away
The study unpacked expenditures across many industries, finding that 92% of respondents report their cloud spending has increased. The average lift is 30% — a number notably higher than other recent estimates of 19% and 20%. On average, companies spend $40M on cloud services with a surprisingly even split among categories: SaaS (28%), private cloud (28%), IaaS (25%), and UCaaS (19%).
Innovation Unmanageable: GenAI Threatens More than Just Budgets
What’s more interesting? GenAI is redefining cloud consumption. The top three reasons for spending increases are: AI (50%), GenAI (49%), and automation (36%). Warnings have been published about the anecdotal cost implications of heavy investments in AI and GenAI technologies, but few studies link GenAI to cloud cost increases as significant as 30% year over year. Plus, the data demonstrates the financial risk of it: 72% agree that “GenAI spending in relation to the cloud is becoming unmanageable.”
Savvy IT leaders know that large language models, machine learning, and advanced algorithms in support of business intelligence are cloud resource hogs. Data demonstrates the aftermath: Power-hungry GenAI technologies can make innovation financially unsustainable when not managed properly, and this view is persistent among respondents, regardless of whether respondents consider their organizations mature or immature in their FinOps practice. While self-perceived maturity levels may be overinflated, this could suggest that GenAI-cloud spend is a stubborn problem to solve, particularly without outside help.
Environmental Impact: The Downstream Effects of GenAI Spending
AI’s cloud demands are taking a toll on the environment too. What will 30% more cloud spend mean for corporate carbon footprints? Massive data center workloads mean more energy consumption, so It’s plain to see how the cloud and carbon footprints are connected. In July, Google reported its greenhouse gas emissions are soaring due to GenAI. In fact, estimates show a single ChatGPT query consumes 10 times as much electricity as a Google search query — enough energy to power one light bulb for 20 minutes.
With even the environment at stake, it’s time for cloud costs to simmer down.
How FinOps Fixes the Cloud Spending Problem
Cloud spending spans many categories (IaaS, Private Cloud, SaaS, UCaaS), which means FinOps programs must cast a wider net to be both relevant and effective. But analyzing cost data across multiple services can be a daunting task, particularly when each vendor presents data in different formats. In leveling this playing field, the FinOps Foundation has introduced a new set of standards for cloud financial data. Known as the FOCUS specification, this data schema is also an industry-wide initiative calling on service providers and FinOps software manufacturers to adopt and deliver consistent datasets for costs, billing, and usage information. Tangoe has adopted the FOCUS standards.
New Standards Allow FinOps Coverage to Expand
With various billing taxonomies now being normalized industry-wide, FinOps practitioners can more easily make apples-to-apples comparisons across multiple hyperscalers. But this breakthrough in streamlined observability also expands the horizon for multi-cloud optimization. It now has the potential to move beyond IaaS into other domains like private cloud, SaaS, and UCaaS.
The data shows an overwhelming number of respondents agree that FinOps coverage needs to expand to accommodate the broader mix of cloud technologies and services:
- 94% assert that FinOps must evolve to incorporate SaaS, not just IaaS
That’s because Shadow IT remains a significant issue:
- 77% agree that “Shadow IT is a serious inhibitor to cloud cost management at my organization”
- 38% of SaaS spending comes from Shadow IT
- 67% admitted that at least some of their productivity software licenses are going to waste (think Microsoft 365® and Google® Workspace)
The average annual SaaS spend per employee is $2,559, and most companies spend nearly $1,000 per employee on unsanctioned applications. This goes to show the amount companies waste and thus the amount they stand to save with an effective SaaS management program.
Consider More than Just Cost Reductions – Efficiency and Security
When you hear the word FinOps or cloud optimization, most people think about the benefits of cost savings. However, it’s important to see the other side of the benefit coin: 94% of respondents consider increased productivity a derived value.
Visibility and security are also recognized advantages. Enhancing productivity has emerged as a top priority for FinOps practitioners, highlighting the demand for solutions that do more than just pinpoint sources of savings but truly advance IT operations and financial management practices through AI and robotic process automation. Don’t miss the infographic summary of the study’s key findings.
Address 2 Key Trouble Spots: Cloud Repatriation and Cost Allocation
The data also shines a light on specific areas where respondents report tough challenges, the first of which is cloud repatriation and the need for private cloud cost management. The study found that:
- 95% of FinOps practitioners plan to repatriate at least some of their cloud resources, shifting public cloud resources to private clouds or on-premises infrastructure
- On average, 47% of cloud resources are slated for repatriation
While the overwhelming majority of respondents are migrating their workloads to private environments, 80% of them say private cloud costs are trickier to manage than public cloud costs. Therefore, they’ll soon face bigger problems in hybrid cloud financial management. In response, FinOps practitioners will need to zoom out from traditional IaaS-focused controls, tracking and analyzing expenses across their entire cloud estate. Gaining a satellite view with all costs in one place can aid in providing a clearer picture of the macro-level trends for strategic guidance in cost reduction.
With more cloud repatriation, it will be increasingly important to have a FinOps solution platform that:
- Manages hybrid cloud costs (both public and private)
- Adopts and uses the FOCUS standards for billing/usage data
- Applies those FOCUS standards across hybrid cloud costs (both public and private)
Anything less would mean FinOps practitioners can’t achieve multi-cloud optimization for their hybrid-cloud environments. They won’t be able to normalize public and private cloud cost data to make apples-to-apples comparisons knowing when it’s more cost-effective to use public versus private cloud architectures.
Explore how Tangoe helps you manage private cloud costs.
Cost Allocation: Another Bump in the Road
Cloud services are typically shared across many departments; therefore, cloud expenses should also be shared. This way the IT department isn’t financing the lion’s share of business operations. But cost allocation practices can be painstaking. For instance, it’s hard to manually split cloud invoices according to departmental usage and ensure all costs are allocated to the correct cost center. Respondents wholeheartedly agree:
- 93% agree that cloud expenses should be shared across the entire organization
- 53% of respondents find cloud chargebacks challenging and time consuming
- 43% say cost allocations are also challenging and time consuming
How to Allocate Cloud Costs to the Right Cost Center
Tangoe’s three tips for cost allocation simplification include:
- Take a unified approach to cloud cost allocation and chargebacks – centralized management dissolves the complexities of distributed IaaS, SaaS, and private cloud expenses
- Leverage technology to automate chargebacks – manual productivity losses can be significant
- Integrate corporate financial systems with FinOps software platforms – your business rules should be used to accurately and automatically assign costs to the right line of business and cost center
Learn how Tangoe eases the burdens of cloud chargebacks.
Data Exposes the Best Solution – FinOps Software from 3rd Parties
Vanson Bourne’s study points to purpose-built FinOps platforms as the best approach for driving down sky-high cloud expenditures. Organizations leveraging third-party FinOps software are proving to be better equipped — demonstrating the highest confidence in managing AI-driven cloud expenses. When compared to manual processes, home-built software, and native tools from providers, those using third-party FinOps software:
- Increase FinOps maturity and confidence
- Alleviate spending concerns over traditional AI, GenAI, and Shadow IT
- Manage costs across a broader range of cloud technologies