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Demystifying Cloud Pricing

When organizations look to the cloud, benefits such as rapid speed to market, high availability and agility to burst or tear down resources to meet the demands of scale come to mind. However, those very attributes of the cloud create unique challenges for organizations trying to forecast costs for cloud services. Whether you're new to cloud or a veteran, read on to learn how pricing works across the big three public cloud providers.

June 11, 2020 5 minute read

Cloud solutions typically leverage multiple products and features, and pricing for these services tends to be very dynamic. New products and services are added monthly, service availability varies by region and units of measure range from seconds to flows to bytes.

Introduction to cloud pricing

In order to take an informed approach to determining cloud costs, organizations should look at scoping the attributes of individual workloads, estimating usage over time and leveraging tools provided by each of the cloud providers, such as monthly cloud calculators that provide cost breakdowns and estimates of monthly aggregated costs. 

But first… FinOps

If cost optimization is a top priority, then additional measures should be taken to ensure that workloads are architected so that cloud resources are utilized as efficiently as possible. Start early with a healthy cloud financial operations model in mind, and put cost control mechanisms in place before environments grow too large or too complex.

Cloud providers are incorporating more advanced functionality natively into their consoles that allow organizations to view and manage costs more easily. However, many enterprises still struggle to gain the level of visibility required to understand their cloud consumption in a meaningful way for their business.

When enterprises outgrow the native billing functionality available in their cloud console, additional tools that are purpose-built for managing the financial operations aspects of cloud consumption come into play. These tools offer custom dashboard views, visibility across multiple cloud providers and savings recommendations, amongst many other features that allow organizations to summarize or drill into their cloud consumption according to their business’s priorities.

In addition to ensuring that workloads are architected or refactored for the most efficient utilization of resources, many organizations are looking at adopting a multicloud approach versus putting all workloads onto a single platform. Evaluating and leveraging multiple cloud providers allows organizations to run workloads on the platform that provides the best environment for optimal performance. However, it also introduces another layer of complexity to an organization’s cloud financial operating model.  

As more organizations move to a multicloud model, cloud cost optimization tools are responding by bringing consumption data from multiple cloud providers into a single view. As a result, organizations can gain the real-time visibility into their total cloud spend that allows them to catch issues quickly and make better financial decisions.

Cloud pricing models

Public cloud providers offer various purchase options to fit the needs of different organizations, as well as opportunities for additional savings. Pay as you go, and reservation- or commitment-based purchase options enable organizations to leverage the best fit model and to capture the best return on investment for each use case. No minimum commitments or contracts are required unless organizations opt to choose the savings provided by commitment-based models.

Navigating the details of the various purchase options from each cloud provider may seem daunting, however, the most common models and the terminology used by Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform (GCP) are explained below. As cloud providers change their pricing models frequently, please visit the appropriate cloud provider website for the most up to date and relevant information. The cited savings are provided as examples, as actual savings may vary based on region, instance types or usage.

AWS pricing models

  • On Demand: Pay for compute or database capacity without long-term commitments or upfront payments.
  • Dedicated and Spot Instances: Available with Amazon Elastic Compute Cloud (Amazon EC2).
  • Dedicated: Run EC2 in a virtual private cloud on hardware that’s dedicated to a single customer.
  • Spot: Allows the purchase of spare computing capacity with no upfront commitment at discounted hourly rates.
  • Reservations: Provide greater discounts, in the range of 50-75 percent for organizations that pay for capacity ahead of time.
  • AWS Simple Monthly Calculator: https://calculator.s3.amazonaws.com/index.html

Azure pricing models

  • Pay As You Go: Pay only for the cloud resources you use without long-term commitments or upfront payments.
  • Azure Spot Virtual Machines: Purchase unused compute capacity at up to 90 percent discount.
  • Azure Hybrid Benefit: Use existing Windows Server and SQL Server licenses with Software Assurance to save 40-55 percent on Azure VMs and Azure SQL Database when migrating to Azure.
  • Reservations: Save money when you reserve resources in advance. Choose from one and three year options to save up to 72 percent.
  • Azure Pricing Calculator:  https://azure.microsoft.com/en-us/pricing/calculator/

GCP pricing models

  • Pay As You Go: Pay for GCP services as needed without long-term commitments or upfront payments.
  • Sustained-Use Discounts: Automatically receive discounts up to 30 percent on workloads that run for a significant portion of the billing month on Compute Engine and Cloud SQL.
  • Committed-Use Discounts: When you purchase a one or three year committed use contract for VM usage, you can receive up to 57 percent in discounts.
  • Google Cloud Pricing Calculator:  https://cloud.google.com/products/calculator

Custom pricing options

For customers that plan to consume upwards of $1M in cloud services over the course of twelve months and who meet other eligibility requirements, there may be additional custom and private pricing agreements or programs available through the cloud providers and WWT. Please contact your WWT representatives for more information.

Summary

Cloud pricing tends to be very dynamic, with new products and services added monthly and various purchase options available to customers. Despite these variances, many cloud-based applications end up displaying more stable and predictable patterns over time, which allows organizations to leverage reservation or commitment-based models for significant cost savings.  

WWT will work with you to navigate the various purchase models and make recommendations based on information gathered as a result of Cloud Planning and Assessment Workshops, cloud application scoping engagements and finally, through the use of Cloud FinOps tools. Through this informed approach to estimating and managing cloud costs, you can confidently project and manage costs for your specified workloads.

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