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More and more companies are adopting a multicloud strategy, which means they need to compare the costs and commitments they incur from the big three providers and choose services. Except, that’s almost impossible. Google, Amazon and Microsoft charge so differently that many companies cannot take advantage of a multicloud approach. They just don’t know which provider is best for their needs and usage.
Gartner has forecast that end-user spending on public cloud services will reach $482 billion this year, a remarkable amount for something so opaque. Investment firm Andreessen Horowitz (aka a16z) has bemoaned how cloud costs are eroding the value of public software companies by hundreds of billions of dollars. And some tech companies are making huge savings by moving operations out of the cloud.
Billing comparisons are almost impossible, cost allocations difficult to grasp
Nobody questions the value of cloud services themselves, but everyone understands that their billing methods are a nightmare that needs to be unraveled. The stakes are too high and the numbers too big for this to continue. Standardized billing across cloud providers is long overdue. Here’s why.
Non-standard billing creates three types of problems. The first is managing different types of commitments at cloud providers, where terms and implementations vary so widely. The second issue is tracking spend with different savings attribution schemes and definitions of cost metrics, such as The third is the increasing use of multiple cloud platforms and services managed within them, each with their own tagging conventions. For many, it is virtually impossible to allocate costs internally, even when using only a single cloud platform.
The end result is that customers cannot make a direct comparison between providers. To understand the scope and complexity of this problem, let’s compare the three major cloud service providers: Amazon Web Service (AWS), Microsoft Azure (Azure), and Google Cloud Platform (GCP).
The Big 3: Mature billing or not, all are confusing
Of the three, AWS has the most mature billing model. Here we define term as the number of discounted commitments available to customers as an alternative to purchasing on-demand. In 2019, AWS introduced Savings Plans to offer customers another discounted purchasing model outside of Reserved Instances. This maturity has also enabled AWS to develop the most granular pricing options per SKU. Increased optionality helps select the best commitments to cover your infrastructure. But with so many choices, customers get confused. For example, there are numerous legacy billing constructs such as Convertible Reserved Instances that customers can erroneously purchase in place of more efficient alternatives.
Compared to AWS, Azure is less mature in its billing model. But they forgive things like allowing resale by offering a guaranteed resale with a 12% penalty fee. There is a chance for AWS users to be stuck with Reserved Instances that they cannot sell and do not need. They also offer the additional option of a heavily discounted five-year commitment to certain resources, offering a price point that can actually rival owning your own server. The other providers have a maximum commitment of three years.
GCP is also less mature than AWS, but offers two discounted purchase options. Committed Use Discounts offer a discount in exchange for a one-year or three-year commitment, such as RIs and Savings Plans. GCP also innovated the discount model by creating sustained use discounts that automatically apply discounts when Compute Engine VMs are used for a significant portion of the month. The discount threshold varies by resource type.
The independent development of each provider’s billing model has led to differences in pricing. Each “primitive” or component such as a machine, managed service (like Lambda or Dynamo), bandwidth and storage all have different base pricing models that can be further complicated by long-term commitment discounts as well as top-level enterprise discounts.
The benefits of accessing a wider range of Services and being able to make choices are negated if you cannot make a comparison between Services and be confident that it is accurate. Therefore, standardized billing is important for almost all cloud users.
How to fix this: Develop an open billing standard
Our team is currently working with the finops foundation and cloud customers to develop an open billing standard that can be used to compare projects from different providers.
The first area that needs to be addressed is creating a common standard to define the parameters for usage-based pricing of various components. That way, you’re not faced with comparing services that are billed by the hour versus those that are billed by usage. Next, a common language is developed to characterize commitment discounts between vendors and the degree of flexibility that the discount allows. This helps customers weigh the trade-offs of using discounts that require a longer commitment period or offer some level of additional flexibility, particularly in cases where variable usage is possible.
Allowing an apple-to-apple comparison of SKUs helps customers choose the right services for their needs across all providers. Customers don’t feel limited to using the provider they are most comfortable with. They can also rest assured that they are investing in the right resources to run their business at its best.
Aran Khanna is the CEO of Archera.
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