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How to Optimize for Cost in the Cloud: Sourcing and Consumption models

| nmb@konfitech.com

Adopting the cloud has reached a point where the question is not if they will adopt it, but rather how and at what rate they will adopt the cloud. Enterprise size companies are almost all having some cloud workloads, and the big three AWS, Microsoft Azure, and Google Cloud Platform are investing heavily in compute to meet demand. Given this rapid adoption, cloud cost optimization has become a crucial focus for many organizations aiming to manage their expenses efficiently.

The new model of consuming infrastructure and compute power rather than owning it has had many unique effects and benefits on business. Benefits such as being fast, adaptable, and agile to handle the demand from the business. Showing that flexibility is a powerful tool and competitive advantage in the compute market and as a tool for enabling businesses.

This also affects the bottom line of the business differently in terms of expenditure. The consumption model of the cloud allows the business to not spend capital expenditure, meaning the need to acquire, upgrade, or maintain physical assets. Now the acquisition, upgrade, and maintenance of using IT infrastructure is an operational expenditure. Being more optimally spent as it is used as a normal business operations expense. Only paying for the compute that is used and can easily scale. Not needing to pre-acquiring extra computational power just in case as a capital expenditure.

However, it is not all sunshine and butterflies. The cloud is a complex and difficult place, and many suffer from similar problems with it as traditional IT. There are two main problems:

  • Cloud cost optimization
  • Cloud value realization

According to McKinsey the way to solve these two problems and really capture the value of the cloud, the consumer of cloud needs to change their approach to sourcing and consuming. Approaching this with the traditional IT sourcing and consumption mindset will not bring the bills down to the level that cloud can promise.

Here are a few ways to improve your IT sourcing and consumption habits to become better at cloud cost optimization and value realization.

  1. Be dynamic and flexible when sourcing for and in the cloud.

Traditional IT Sourcing of infrastructure was a steady and mostly cyclical process. Every now and then the hardware or software licenses needed to be upgraded or renegotiated. The business would start mapping requirements onto an RFP template, which led to vendor negotiations, and ultimately selection. Most achieved success in this model by occasionally engaging with the business at critical points such as requirements mapping and RFP. Then when contract was signed, they focused on the next round of renewals or something else.

In the cloud the client to vendor relationship has changed. Microsoft, Amazon, and Google generally don’t serve end customers directly. They have added a layer of companies in between them and the end client that packages the cloud services into different offerings, known as Cloud Service Providers. Their incentives are within the various deals they have with the AWS, Azure, and GCP. They often live off revenue generation and percentages of that, alongside additional services they package into that offering. When you source them, you will still map requirements to RFPs and negotiate. However, the full cost aspect of the partnership and consumption of cloud and the decisions related to what to consume will not arise until after the negotiations. To optimize and realize value businesses must continuously make decisions about what to consume and for how long, which requires a tenacity in management and upfront planning, and sometimes enter renegotiation for discounts on demand with the CSP.

It is so critical to stay informed and up to date to be able to renegotiate effectively, or manage the cost, or make the best decisions. New services and features launch all the time, with different cost models and price adjustments from the suppliers which you need to follow. Therefore, having experienced and expert partners that will do this dynamic up to date sourcing for you or supplement your process is critical to optimizing and realizing your value from the cloud.

  1. Cloud economics is all about demand.

Traditional IT the questions for compute power and infrastructure was around price and quantity. Where quantity was a number that was hard to scale, it was a somewhat lesser flexible variable where one considered average and peak demand. So, to optimize for the quantity enterprises focused on consolidating the supply side to get better deals, by creating standard stock and making favourable contracts based on the supply side’s ability to offer.

The cloud flips the coin around, now the enterprises must have a much deeper understanding of the demand variables and their interconnected nature to their cost business to negotiate great deals. Considering demand variables that balance out performance and cost to an optimal level. Meaning you must adjust and manage infrastructure setup more dynamically. Considering things around enterprise alignment of infrastructure, maybe even reserving instances for discounts? Should you consider infrastructure on use-case basis, sourcing for every single use-case? How will demand be on a geographical level, do you need instances in other regions and is it worth not having latency? How long will this be needed, could we save by reserving instances?

These variables and many more needs to be considered. Meaning that IT sourcing in the cloud needs to be cloud and business experts to understand the intricacy of demand and how it maps to the newest cloud solutions and roadmaps.

If you are familiar with many of these factors upfront the negotiations, you can make even better decisions optimizing for spend even further. In general, the most successful cloud cost optimization programs are the ones that are using on-demand model. Continuously monitoring and sourcing the best-to-use-case fit and working continuously to optimize.

  1. You need to have analytics.

Visibility of consumption and the matching of that to spend is vital to see if there is value seeping by not optimizing cloud consumption units. The large offering and broadness of the cloud can be a curse if you do not have visibility and understanding of each asset. Your company might be running multiple different models of infrastructure for various use cases, and you need data on that consumption alongside forecasts for demand and cost, to investigate if there is lack of optimization. Visibility into assets is therefore key and disregarding the analytics that many of the cloud providers have already integrated into their solutions is a big mistake.

Again, you do require deep knowledge of cloud consumption on a per unit basis, the technical drivers of consumption, and how they are affected by the up-coming demand on the business. This way you can accurately optimize and create potential automated responses to when this happens.

  1. Integrate finance and IT sourcing to optimize for the cloud.

The ones who successfully integrates the financial operations into IT and sourcing operations are the ones who manage to fulfil both the requirement of giving technical teams the flexibility and needs the developers have, while combining it with the financial control and cost visibility and arrangements to optimize for the cloud. This merging of departments into a cross-functional teams allows for faster alignment of stakeholders alongside speed and tracking ability required.

Being able to speak the language of both teams and important stakeholders in managing the cloud function and understanding the technological capabilities and price trends.

Here in Konfitech we strive to become the best IT sourcing partner with a heavy emphasis on cloud. If you have any questions and would like to connect and understand how we can improve your sourcing situation or find the best solutions for you while maintaining cost reach out: https://www.konfitech.com/contact-us

Or learn more about how you can get the most out of the cloud from our blog: https://www.konfitech.com/konfitechs-blog

Want to know more about Konfitech, read our “about us” page: https://www.konfitech.com/about

https://konfitech.com/insights/cost-optimization-sourcing/

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