How startups and SMBs are reducing their cloud costs
The vast majority of enterprises and small businesses use cloud computing as a core part of their infrastructure, relying on cloud providers such as Amazon Web Services, Google Cloud, Microsoft Azure, and DigitalOcean to host their websites and applications. The cost of these services is often a large part of businesses’ operating expenses, with costs even for startups and SMBs running into the tens of thousands of dollars per month. This is especially the case for tech-focused businesses that use multiple products such as virtual machines, databases, storage, and other cloud products to keep their applications up and running.
Because cloud costs can be so high, it’s important for businesses to understand what they are paying for, how costs will grow over time, and ensure that they are properly using all the resources available to them. Unfortunately, many hyperscaler cloud providers make it difficult for users to understand their monthly bill, and line items like egress costs can balloon quickly without careful monitoring.
That’s where cloud optimization comes in, a concept that has become increasingly popular as many businesses grapple with a slowing economy, lack of funding, and need to reduce operating costs. Cloud optimization is the process of “optimizing” cloud architecture to reduce costs or remove underutilized or unused resources. The benefits of cloud optimization include cost savings, efficiency gains, and building a more scalable application for the long term. However, the process itself can often be time-consuming and requires technical expertise that not all businesses have.
In order to better understand the prevalence of cloud optimization activities today and how businesses of differing sizes are tackling this issue, we conducted a survey with 577 respondents who identified as IT decision-makers. We asked a range of questions regarding cloud optimization to see how many businesses are prioritizing these efforts, the specific benefits they are seeing from cloud optimization measures, the tools they use, and more. We also dug into the usage of managed services such as managed databases, and how respondents think about using managed services to save money and time. Read on for the results.
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Given the recent focus on cloud optimization and cloud costs, we first asked if respondents were familiar with the term “cloud optimization,” finding that 66% of respondents are familiar with it. Larger businesses were generally more familiar with the concept, with 73% of businesses with 10 to 49 employees being familiar with cloud optimization, compared to 60% of those with 2 to 9 employees and just 49% of sole proprietors.
We then dug into how cloud costs have changed for respondents over the last year, with 89% reporting either significant or moderate increases in their cloud spending. Businesses with 10 to 49 employees were most likely to report that their costs had increased significantly, at 41%.
When asked specifically about how much costs had increased, 63% said costs had increased $500 or less per month, 12% said costs had increased from $501-$1000, 4% from $1001-$2500, 4% from $2501 to $5000, and 8% said costs had increased by over $5000 per month. As expected, larger businesses generally experienced more significant cost increases, though even out of businesses with 10 to 49 employees, 17% reported increases of over $2500/month.
The most common reasons behind the increase in spend were increased usage (61%), and adding more products (54%), while 23% said the increase included their cloud provider increasing costs.
When asked if respondents have taken measures to reduce their cloud costs, we found that 53% of respondents have taken active measures to optimize their cloud spend (reduce costs) in the past year, demonstrating the importance of cloud optimization for over half of businesses surveyed. Cloud optimization was especially common amongst businesses with more than 10 employees—while 42% of those with under 10 employees, 64% of businesses with 10 to 49 employees, 73% of those with 50 to 99 employees, and 69% of those with 100 to 249 employees have taken measures to reduce their cloud costs in the past year.
Those who haven’t optimized their cloud most often mentioned they were fine with the cost they are currently paying (44%), or don’t have the time (28%) or internal resources (21%) to optimize their cloud spend.
There are various strategies an organization can take to reduce their cloud spend, from ensuring resources are utilized as efficiently as possible, to re-architecting products and solutions, and even moving cloud providers to take advantage of lower pricing. We found that respondents are employing a number of measures to decrease their cloud costs, with architecture and product usage changes being the most common, at 59%, followed by reducing usage such as bandwidth or virtual machine instances (43%). Generally, the larger the organization, the more likely they were to be making changes to their architecture, adopting a multi-cloud solution, and using tools to help them identify savings.
Cloud optimization can be a time-consuming process—while 55% said the process of optimizing their cloud costs took two months or less, 22% state that the work is ongoing. This demonstrates the importance of organizations putting aside dedicated time to conduct a thorough review and optimization of their cloud costs.
While cost reduction is typically the main benefit associated with cloud optimization, there are other reasons to optimize a cloud configuration, including reducing time spent managing cloud services and future-proofing cloud architecture. Our survey found that reducing costs with cloud providers was the primary benefit respondents wanted out of their cloud optimization efforts, mentioned by 70% of respondents, while 38% wanted to increase their ability to scale, and 35% of respondents mentioned reducing time spent managing cloud services.
While reducing costs was a main reason for cloud optimization across business sizes, those with larger teams were more likely to want to reduce time spent managing cloud services and accurately predict cloud costs—over 40% of those with between 10 and 249 employees mentioned reducing time spent managing services as a benefit, while only 33% of sole proprietor businesses and 28% of businesses with 2 to 10 employees said the same.
The most common tools that businesses use to optimize their cloud costs are cloud-specific tools provided by cloud providers such as AWS and Microsoft Azure themselves, at 47%, while 46% use general monitoring tools such as New Relic or Prometheus, and 17% use non-cloud specific cost monitoring tools such as Nops.io, Densify, and Apptio Cloudability. Nineteen percent said they used other tools such as their own monitoring tools and basic spreadsheets.
In this report, we also looked at how businesses use managed cloud services. Managed cloud products, such as managed databases or managed cloud hosting, vary in what they provide but often these services will manage updates, scaling, and backups for the user. Managed cloud hosting, such as services offered by Cloudways and other managed hosting providers, abstract away the need to manage virtual machines at the code level. We asked respondents in this survey if they use managed cloud services, and what cost or time savings they may get from using managed vs. unmanaged cloud services.
Our survey found that managed cloud services are quite popular, with 58% saying they use managed cloud services, with businesses with more employees more likely to use managed services than very small businesses. Of those who use managed services, managed databases were the most popular, with 76% saying they use managed databases, 40% using Platform as a Service solutions, 29% using managed Kubernetes solutions, and 43% using managed web hosting. While the majority of businesses of all sizes reported using managed databases, their usage does go up with business size. Additionally, managed Kubernetes is more used by businesses with at least 10 employees, with 39% of those with 10 to 49 employees using managed Kubernetes compared to just 20% of those with 2 to 10 employees and 6% of sole proprietors.
The majority of those (73%) who use managed services find they save on overall costs by using these services. The amount saved per month using managed services varies, but 40% report saving $500 or less per month by using managed services.
An even higher percentage report that they save time using managed services—88% save time by using these services, with 47% saving up to 5 hours a week, and 20% estimating they save between 6 and 10 hours a week. Given that employee time can be costly in itself, saving time on managing cloud services is incredibly valuable for organizations.
Even if not all businesses recognize the term “cloud optimization,” it’s clear that many businesses today are keeping a close eye on their cloud costs, and over half of them are actively taking measures to reduce costs. While the effort to optimize cloud spend can take time and effort, better understanding how costs will scale as a business grows and ensuring costs stay in check is important for many companies. Changing application architecture to a cloud service that is more efficient and cost-effective may save businesses thousands of dollars in the long run, which is why more and more businesses are actively looking for ways to optimize their cloud.
DigitalOcean provides cloud solutions tailored to the needs of growing businesses and is well-suited for those looking for low bandwidth costs, predictable pricing, and hands-on support from our team of technical experts. If you are looking to reduce your cloud costs, speak to one of our technical experts today.
This survey was conducted from August 17th to September 8th, 2023, and included 577 respondents who identified as IT decision-makers. The survey was sent via email to DigitalOcean’s email lists, and includes respondents from businesses of a range of sizes and industries, with the majority of respondents being from businesses with under 50 employees. Respondents used a range of cloud providers, including DigitalOcean, Amazon Web Services, Cloudflare, Google Cloud Platform, and Microsoft Azure.