Budgeting Struggles with Cloud Computing

One great benefit of cloud computing is that you switch from a big-bang capital expenditure to a drip-feed operational expenditure model. The move to the cloud is great for many businesses, and financial controllers relish the increased liquidity that’s available for profit-making operations. Switching from traditionally-budgeted IT to cloud computing, however, leads to some challenges for these financial controllers, as pricing is not easy and the pay-for-what-you-use model of the cloud is subject to price fluctuations. In this article, I’ll discuss some of those concerns.

Thinking Like a CFO

Wait! Don’t run away! I know, we’re not talking about scripts, advanced settings, or cool storage or networking features. This stuff is more important because you don’t get to play with that stuff unless the chief financial officer (CFO) signs the checks.
What’s important to the CFO in the IT world? They want to know how much something will cost. With legacy software, that’s relatively easy. Okay, it’s not easy, but once you pay for something, you usually own it. For example, if you purchase five copies of Windows Server Datacenter Edition and 200 user CALs, then you own them. The CFO can take that cost, do some accounting magic, and depreciate those assets over X number of years, possibly even throwing in some tax voodoo.
Now let’s change that to a scenario where you’re going to deploy those machines in a public cloud. If that public cloud is Azure, then you’ve got to estimate how much of the following will be consumed every month:

  • Virtual machine instance hours: Easy to predict and tunable with auto-scaling and automation.
  • Storage GB: Another simple enough one to estimate.
  • Storage transactions: I’ve yet to meet someone who can explain what this is, let alone estimate it.
  • Egress data: Hmm…
  • VPN Gateway hours: There’s only so many hours in a month, so calculate this one is easy.
  • ExpressRoute: Some of the partners don’t even know that they are partners. Has anyone tried talking to BT in the UK? Two of my reseller customers gave up after repeat attempts.

CFOs like easy and predictable. And they like assets that they can depreciate. None of these traits can be found here.

Recent Price Increases Across Azure Services

A Microsoft customer can get a certain amount of price predictability using special volume licensing programs such as OVS for small-to-medium enterprises (SMEs), which locks in pricing over a number of years. A program such as OVS offers a simple model:

  • How much will the hardware cost to acquire?
  • How many users have you got?
  • How many servers have you got?

That’s a bit of a simplification, but it’s not far from the truth. Things aren’t so predictable with cloud computing. We’ve all become accustomed to the costs of cloud computing coming down every few months. But customers in the Euro zone (the single currency used by a number of European Union states) and Australia found out in the last week that cloud computing costs can increase sharply and at short notice. Microsoft announced the following would happen on August 1st:

  • Azure consumption cost increases: 11% for Euro zone and 26% for Australia.
  • Increases for most Office 365 plans: Euro-zone customers will see 8% or 10% increases on most plans.
  • CRM Online: Going up by 10% in the Euro-zone.
  • EMS: Microsoft’s MDM add-on for Azure AD will increase by a massive 26% in Europe.

Many of these increases can be justified by currency fluctuations, as the Euro has crashed compared to the US Dollar, but customers don’t perceive it that way. Instead they see increased costs at less than one months’ notice. How is a CFO supposed to budget an IT spend over one year with these kinds of increases, let alone over three or five years? Note that these products aren’t price protected under open licensing programs like volume licensing products are (some of which are also going up, particularly user CALs by 13 percent).

Microsoft Needs to Address Price Predictability

There are two problems. First, giving customers less than one months’ notice of price increases for these utilities is absurd. This isn’t home electricity, where I can switch suppliers at will. If that’s how Microsoft wants us to view cloud computing, then things will change, and not in a way that Microsoft stockholders will appreciate.
Second, customers want price predictability. If they are going to invest in a platform, then they need protection for several years against massive price increases. A big fear that many have had is that Microsoft would lure customers into the cloud with cheap pricing and then slam the door shut and announce price hikes. I know that’s not what Microsoft is doing, but that’s how it feels to many customers right now — the cost of using Microsoft’s clouds just went up by as much as 26 percent, while everything else has stayed static or reduced.
At this time, I have not been made aware of any price increases by Amazon or Google. Maybe these recent announcements will be Microsoft’s answer to VMware’s vTax of several years ago.

Cloud Solutions Are Not Cheap

Many moons ago, when Gartner told us that we would all be using VDI from our hover-cars, we were also told that VDI was cheaper. That’s a myth, as VDI changes how desktops are deployed, but costs can actually increase. The same is true of the cloud. Some cloud solutions do reduce costs, cloud solutions are are not a cheaper alternative to on-premises computing for the most part. The cloud changes how we can deploy IT and what we spend our time doing. Instead of being limited to what we can afford over three to five years on premises, the cloud allows us to use high-end solutions on a utility basis. It increases flexibility, and it allows us to focus on where IT can add value.
But CFOs will focus on finances. In my opinion, Microsoft needs to give customers solutions that suit the techies and the business, and right now, there’s room for improvement.