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Unhide 5 factors that are raising your cloud budget

#1 Scrutinize your cloud providers' waste model

In this booming market of cloud migration, more enterprises migrate their data and applications from their premises to the cloud. While deepening their adoption of cloud services, digital and IT leaders are increasingly tasked with optimizing their investments. Especially in 2019, marketing and IT budgets are tightening in gloomy economic prospects.

This is why at Kipitapp, we embrace our customers' new year challenge with dedication to delivering more value while reducing budgets. And offer here a practical guide on how to achieve this quickly.

In this series of posts, we will go through five key factors that entail your cloud spending and how to grow your business while saving your money.

So please read on and subscribe for the following posts at the bottom of this page.

Cloud Users Are Wasting 35% of Their Cloud Spending

According to a report by Flexera, cloud users are wasting 35% of their spend. At Kipitapp, we believe this is still strongly underestimated if we consider every aspects of the cloud value chain and the latest technologies available to businesses.

In this first chapter, we focus on what we call the "waste model" of historical cloud computing providers.

Wait! You said waste, Dr. Hammer ?

When talking about waste, my preferred reference definition is Dr. Hammer's trailblazing research on The Process Audit published in the business magazine Harvard Business Review. I was fortunate to follow an extensive training curriculum on his methods at a Global Fortune 500 corporation. And I still believe in the majority of his research conclusion after more than 10 years.

Roughly Dr. Hammer analyses corporate spend, either time or money, as:

  • Value-added: what the customer expects
  • Non-Value added: what must be spent for various reasons but the customer doesn't care for
  • Waste: what does not even need to be spent but still is.
Not rocket-science, granted, but a very good start for an optimization effort.
Our take is that the waste model of historical cloud computing actors has just become unbearable to mainstream users of cloud computing. How so? Look further at the facts we've gathered on this financial burden they put on their customer's shoulders.

The metastatic mammoth: SOX regulation

We are used to enjoying the benefits of well-crafted, healthy and fair regulations that directly affect the people. However, the regulation towards businesses is a totally different story and the High Tech industry is no exception.

The major historical cloud computing providers have in common to be public companies listed in the US. Hence, they all fall under the duty to play by the stock market rules and its country regulations. So let me just take one iconic example of how crazy this machinery can become: Sarbanes-Oxley.

Sarbanes-Oxley (aka SOX) was a regulation imposed on US public listed companies in the aftermath of the tragic and disgusting Enron scandal. Its new heavy investment and burdensome operating costs triggered a host of extra research work and regulatory reworking unto corporations. Those extra costs include:

  • purchasing new IT software and infrastructure to archive more internal documents such as e-mails, approval workflows, and vouchers
  • IT hardware and energy lost every second to run these assets
  • unfair prices imposed by monopolistic vendors due to the mandatory nature of the compliance
  • outrageous fees for private and government agencies hired to build this mechanism
Numerous research and debates are available online to evaluate the costs and benefits of SOX, but our opinion is clear-cut:
  • those costs are pure waste to companies who already run their business honestly and ethically
  • they come in addition to already heavy reporting and auditing costs to public companies
  • and to further costs imposed on companies when auditors decide non-compliance on either process, risk, or reporting management base on externally imposed standards

Go private to innovate again?

Additionally, another high cost to the customers of public listed companies might be the obsolescence of their technologies.

Because their management team is under the pressure on delivering pre-established quarterly dividends regardless of the business situation. This duty diverts critical R&D investment amounts into shareholder dividends, which is extracting from the revenues of existing, often aging products. This phenomenon is extensively explained by the articles of Why Public Companies Go Private. And SOX regulations mentioned above just worsen it.

The staggering demonstration I saw is from 3 Reasons Dell Went Private, and quote from Mr. Dell: Our 110,000 team members worldwide are 100 percent focused on our customers and aggressively executing our long-term strategy for their benefit.

Frankly, if you're a customer, you surely prefer to have your vendor serving you rather than being distracted by obscure regulatory offices requests among other distractions. Dell Technologies Inc. now has a much more innovative business model ready to capture stock market investment money again from a much healthier starting point.

Outdated extra waste

Another extra burden imposed on the customers of historical cloud actors is their outdated network of global offices of which the purpose is now mostly obsolete for an internet industry company. Remember that one of these actors used to sell packaged boxes of software globally through this channel. A big part of this logistical burden from the past is still remaining and costs are borne by its paying customers.

But the newest of its contenders do not fall short of wasting money in their global operations. All of them have to cash-out tens of millions in lawyer fees, if not billions in fines, to respond to global inquiries on their often questionable business practices regarding activities fully unrelated to their cloud computing services. Again, they collect these costs from their customers to deliver the quarterly earnings and share valuation whatever the business situation is.

Takeways for your 2019 budgeting solution

To wrap this all up, we collected references as to how historical major cloud actors:

  • waste their customers money into overwhelming regulatory costs
  • lose the lead on innovation to private competitors and startups
  • charge customer undue fees caused by their other business lines, either mismanaged or obsolete

We hope this first chapter will provide the readers a specific aspect to scrutinize on their current cloud providers and determine hefty saving opportunities either through tough negotiation with them or by switching to a more agile, innovative, and cost effective solution.

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