The Real Reason Cloud Costs Are So High– And How to Beat Them
When Tangoe released its report on rising cloud costs, the findings were alarming but not exactly surprising. Enterprise cloud bills have jumped up to 30%, with most companies calling them “unmanageable.” Civo confirmed the trend, noting that nearly 60% of organizations saw spending rise last year, and for nearly 40%, costs surged beyond 25%.
“Cloud computing doesn’t have to be prohibitively expensive,” says Nigel Gibbons, senior advisor at NCC Group. If it is, that’s a sign something’s off, especially when managing cloud costs is a top priority for executives despite rising engineering demands and extensive workarounds with GenAI deployments.
Curious about what’s fueling these spikes and how to get them under control? Read on.
The Hidden Drivers of Cloud Costs
According to Nigel, getting cloud right means a re-alignment of thinking and expectations, across the entire organization, from the “board to the basement.” That’s the only way the cloud can scale effectively without eating into your bottom line.
But to make that shift, we first need to pinpoint where the misalignment is happening and why it’s causing your cloud costs to skyrocket.
Here are 5 hidden culprits behind rising cloud bills:
- Poorly Sized Architecture: Many organizations either overprovision or underutilize cloud resources. Flexera’s audit of 60+ customers found that 40% of virtual machine instances are a size too large. Idle resources are just as problematic–“always on” setups waste up to $27.1 billion annually when resources stay running during low-demand periods. As Nigel puts it, “Expecting lift and shift to be a magical fix is a mistake. When organizations fail to align workloads with appropriate services, neglect optimization planning, or retire unused resources, costs spiral.”
- Shadow IT & Lack of Visibility: A jaw-dropping 54% of companies call “lack of visibility into cloud expenses” the reason behind their cloud waste, as per Anodot. Without clear oversight, unauthorized provisioning could create cloud chaos, even creating redundant services and inflated bills. Unsurprisingly, 82% of cloud security incidents arise from this visibility gap, hiking both recovery and operational costs.
- Hidden Data Transfer Fees: Data transfers are often seen as a minor cost, up if left unchecked, they can account for 20% of your cloud bill, especially with hyperscalers like AWS. Over-retaining logs, redundant data replication, and poor lifecycle management only make things worse. Hyperscalers offer minimal free transfers (100-200 GB), but with data creation soaring to 402.74 million terabytes daily, the cushion disappears fast.
- AI Rush By Organizations: Even Tangoe’s report points to AI as the biggest culprit behind rising cloud costs. In the rush to embrace AI, many C-suite leaders are overprovisioning cloud resources without realizing it. Training and fine-tuning large models eat up way more computing power than expected. Add the cost of storing and transferring massive datasets, and it’s a recipe for budget blowouts.
- Poor API Hygiene: In microservices architectures, poorly structured API calls create a waterfall of redundant data pulls. This not only strains data storage but also consumes more resources in running cloud instances. Unnecessary hops through API Gateways between internal services further inflate expenses. Think about one financial transaction triggering around nine internal calls. It doesn’t sound too bad until you scale it. At a million daily transactions, that’s $1,000 down the drain. It may look small monthly, but for small businesses, it’s a big hit.
Taking Control of Cloud Costs: Strategies for CTOs
Before cloud expenses blow up your budget, here are four ways to cut the bloat:
1. Get Visibility Into Your Cloud Bills
Peter Drucker’s words, "You cannot improve what you cannot measure," apply to cloud costs. However, measuring costs can be risky if you don’t know what to look for. Cloud cost visibility is essential for understanding how resources are used, spotting issues that might affect performance, and knowing exactly what assets you have to define your attack surface.
Nigel emphasizes that tagging and labeling cloud resources is key to getting this visibility. To get the best results:
- Implement scripts to automatically update tags with resource changes (e.g., scaling events or resource moves) to keep data relevant without manual upkeep. You can also integrate tags into your IaC platform, in case you are using Terraform.
- Focus on tagging big spenders like compute, storage, and databases, and weave them with business-focused KPIs (revenue projects, customer segments). Use thresholds based on these tags and set alerts to catch unexpected cost spikes.
- Building tagging into deployment pipelines to ensure consistent, hands-off tagging before resources go live.
Thankfully, most hyperscalers like AWS, Azure, and Google Cloud already offer built-in visibility tools– AWS Cost Explorer, Azure Cost Management, and Google Cloud Cost Management for geotagging, automated alerts, and pinpointing cost drivers (unused EC2 instances or cloud sprawl).
2. Maximize Cloud Efficiency With Architecture Elasticity
For Nigel, right-sizing your cloud architecture and revisiting it regularly can keep cloud costs in check. “Every decision should be made with a risk-driven approach to stay ahead on cyber resilience,” he advises. Easier said than done, though. Technical debt, massive data silos, and outdated provisioning practices make it difficult to practice cloud elasticity and even inflate the risks associated with cloud provisioning. Still, you have to start somewhere.
Begin by setting scaling policies based on historical metrics like CPU usage, memory consumption, or request volume. Your previous geotagging data can help define thresholds and cool-down periods to avoid rapid scaling swings. Tailor separate scaling policies for different components: say your web tier versus your database layer. This targeted approach reduces idle capacity, stabilizes application performance, and improves overall cloud efficiency. For long-term savings and cloud efficiency, adopt:
- Serverless architecture by refactoring apps into event-driven microservices with AWS Lambda, Azure Functions, or Google Cloud Functions. Traditional architectures often over-provision resources "just in case," leading to wasted spend. Serverless solves this by charging only for actual compute time.
- Containers with orchestration by Dockering your apps for consistent environments. Deploying with Kubernetes lets you automatically scale based on real-time usage patterns, so resources flex with demand rather than being fixed. Setting resource limits prevents any single service from consuming more than it should, a common cause of surprise cloud bills when usage spikes unexpectedly.
- Multi-region and multi-cloud strategy by building location-independent applications. Building applications that aren’t tied to a single location reduces latency for global users and improves resilience against regional outages. Routing traffic based on latency or cost ensures users get faster response times while controlling expenses.
3. Negotiate Vendor Agreements
Azure can be 72% cheaper with a 3-year plan. Even without going long-term, Microsoft EAs offer discounts of up to 45% for existing Azure users. Yet, many companies miss out because vendor talks happen too late or too casually. Even McKinsey’s research into IT-vendor agreements has shown that renegotiations often start just a year before expiration. By then, either the options are limited or the leverage is gone.
For improved contract negotiations, accumulate and monitor your cloud data. If your workloads are consistent, sticking to pay-as-you-go pricing means you’re leaving money on the table. Reserved plans offer significant savings when usage stability is proven. Start by analyzing your workload metrics to separate steady demand from fluctuating spikes; negotiating from your baseline usage (70-80%) will prevent you from overcommitting while securing better rates.
Then there are the “hidden” costs: data transfers, storage transactions, and API calls. These often seem negligible but can become budget busters at scale. Proactively bring them into negotiations to avoid sticker shock later. Providers usually have wiggle room, like data egress fee waivers or tiered discounts (e.g., $100 per million API calls).
However, Nigel believes the best way to rein in cloud costs is simple: make business units directly accountable via chargebacks. When costs are tied to business outcomes, teams spend more wisely and negotiate better deals with vendors. Start with a transparent chargeback system that clearly allocates expenses to the right departments. You can either deploy a cloud cost management tool to track usage by project, team, or application or implement detailed tagging to pinpoint where every dollar goes. “This discipline helps keep cloud spending within tolerances and proportional to the benefits to the business,” says Nigel.
4. Optimize Data Transfer Costs
Every time data crosses regions or leaves your cloud provider’s network, you’re racking up charges. A content delivery network (CDN) can curb these costs by caching static files like images and CSS at edge servers closer to users, so you don’t have to pay the full amount.
Start by listing static assets and setting cache headers for better hit rates. Your hyperscaler also comes with a built-in CDN (CloudFront for AWS, Azure CDN). This way, you can also get the added benefits of simplified billing and volume discounts.
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If your architecture constantly moves data between regions, it’s time to rethink the design. Serve local traffic from local resources by replicating databases and storage in active regions. Need global insights? Process and summarize data regionally before syncing, so you don’t pay to send raw data across the globe. Change Data Capture (CDC) methods based on logs and source table-based queries can also help to reduce data transfers by syncing only what’s changed, not the entire dataset.
For unavoidable transfers, schedule them during off-peak hours to tap into lower rates, and always compress data (gzip, Snappy, Parquet) to shrink transfer size and costs.
Manage Your Cloud Bills With Data & Visibility
“The truth is that cloud adoption will increase costs,” Nigel says. “But those higher costs come with the ability to deliver more, and deliver faster and with greater bottom line potential than ever before– a critical advantage to compete with agility in a feral digital economy.”
Cloud cost optimization is not a race to the bottom. Instead, it should be about intentional spending where your technology choices align with business goals while keeping your organization agile. When you invest wisely, the payoff is lasting market strength and better long-term returns.
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