CSPs, Cloud migration, MSP

Cloud Cost Sprawl: How MSPs Can Help Customers Slash Spend

The migration from on-premises to cloud computing promised lots of things, including cost savings, nearly limitless capacity and on-demand scalability.

For about the last decade, cloud spending has grown about 30% said Sundeep Goel, founder and CEO of DigitalEx. And he should know. DigitalEx is an AI-driven startup focusing on hybrid cloud cost management solutions for companies using service on hyperscalers including AWS, Azure and Google.

But while spending on cloud services may have been unrestrained, for the most part, during the last decade, in 2023 as the economy contracted, organizations realized they needed to rein in their cloud spend.

“For so long cloud has been a ‘blank check’—they buy more than they need, they forget to turn things off; they overprovision. So now, we are at the point where companies would rather cut their cloud spending than have to lay off people,” said Goel. “It started probably last summer. And while bigger enterprises may have internal financial operations (FinOps), for smaller businesses, they need to look elsewhere for help in cutting these costs,” Goel said.

Even as organizations of all sizes are looking at how to get a handle on cloud spending, the migration to cloud infrastructure keeps moving. According to channel market research giant Canalys, worldwide cloud infrastructure services expenditure grew 19% year over year in Q4 2023 to reach $78.1 billion, an increase of $12.3 billion. For full-year 2023, total cloud infrastructure services spending grew 18% to $290.4 billion, up from $247.1 billion in 2022. 

Cloud migration efforts are picking up again, alongside a surge in new demand, particularly in the widespread adoption of AI applications. Hyperscalers are steadily ramping up investments in generative AI, expecting that harnessing its capabilities will catalyze new opportunities in cloud consumption. In 2024, Canalys predicts that global cloud infrastructure services spending will increase by 20%, compared with 18% in 2023.  

Cloud computing has certainly delivered advances in innovation, newer products and services, increased speed to market, and even better security for the entire computing environment. And AI is clearly driving some of that growth. But spinning up a cloud environment without leveraging cost optimization tools (either native or third party) can lead to higher costs.

Higher Cloud Costs are an MSP Opportunity

This is something of a perfect storm for managed service providers. MSPs must find ways to balance the need for more cloud infrastructure with optimization and cost-cutting, says Lane Brannon, EVP, general manager, Americas, Pax8.

“Addressing cloud consumption costs offers a great opportunity for MSPs to position themselves as trusted experts in helping their customers find the right balance between cloud performance and cost,” Brannon said. “MSPs can provide value-added services that help customers optimize their cloud spending, save money, and improve their overall efficiency.”

But MSPs’ role must extend beyond just finding cheaper cloud solutions—though this is one service they can provide, Brannon said. “They need to find value-adds to their business - for example, finding efficiencies in the consolidation and management of cloud tools. This can build MSP profitability as opposed to just cutting costs.”

Pax8 helps MSPs manage cloud computing costs through consolidated billing, tech support, RMM, and PSA integrations, Brannon told ChannelE2E. “We help partners leverage native tools in AWS and Azure that monitor and control cloud consumption, and we are adding third-party solutions as well. Beyond that, our Pax8 Academy coursework and peer groups help partners look across all aspects of their business, including cloud consumption. All of this helps Pax8 partners become more profitable,” he said.

DigitalEx Offers MSP Module

Goel’s company, DigitalEx, launched an MSP-focused module at the end 2023 to help MSP customers onboard, report on and manage their customers’ cloud infrastructure and optimize resources and spending. The module can be white-labeled with the MSP’s own branding, and allows MSPs to more easily invoice their customers based on accurate monthly cloud spending. The solution supports multiple price books and the notion of “re-rating,” critical for MSPs that need to control what their customers see (versus what they see) from a pricing perspective, Goel explained.

DigitalEx’s platform is AI-enabled and runs on Google Cloud. The solution connects to all a customer’s clouds and analyzes 13 months of cost and usage information to build up a data store. Machine learning algorithms then make recommendations for where to cut spending.

For MSPs that support multiple clouds, a new feature called CloudCompare will simulate what a given application would cost to run on other clouds—for example, Google Cloud versus AWS or Azure. This will give MSPs the ability to offer an entirely new dimension on cost savings, according to the company. CloudCompare is currently in beta and slated for general availability in April 2024.

DigitalEx initially chased enterprise customers, but quickly found that they needed to pivot.

“When we launched a year ago [March 2023], we weren’t looking at MSPs/CSPs—we were focused on landing enterprise customers with hybrid cloud infrastructure that we could help optimize. What we found was that, for those customers, it wasn’t feasible to optimize the private cloud in the same way as the public cloud because they’d already bought the servers. Lucky for us, we had early customers from the MSP/CSP community and we quickly learned that it’s a great fit for that instead,” Goel explained.

The value proposition is simple, Goel said; using DigitalEx’s platform, MSPs are able to drive 10% to 30% cost reduction, and Goel said that 90% of users can reduce their cloud spend. 

“We do budgeting, alerting, anomaly detection, etc., as well, but what is a big hook is that we’re able to drive that relatively immediate cost savings,” he said. And there’s still room for revenue growth, too, he added.

“MSPs are generally charging approximately 2% and they’re saving, say, 10%. MSPs get their 2% and we get half a percent. Sure, they have some human cost, but it’s still profitable,” he said. Some MSPs are choosing to absorb that half of a percent rather than pass it on to their customer, Goel said, because they want to keep their customer stickier and happier.

Sachin Asoka co-founder of cloud analytics provider CloudRho, has been partnering with DigitalEx for the last several months and has deployed a white-labeled DigitalEx-powered platform at a joint customer on Azure. 

“We were doing a number of consults with this customer and we noticed that in the previous 18 months that their cloud expenses had doubled. And we said, we have a solution that can tell you about your utilization, where you were spending money, whether they could save and how to optimize things,” Asoka said. “We started with showing them, for example, your CPU utilization has been at 4% for the last 30 days and why—and then we worked with them to find out if it was an anomaly, if they could move it to a different provider, etc.” he said.

The customer was typically purchasing their infrastructure and services directly from Azure, Asoka said, which isn’t the most efficient method. Upon doing an analysis, completing an Azure assessment and comparing the results, they were able to show the customer the benefits of moving to a CloudRho managed service based on the DigitalEx platform, he said.

Asoka said he’s extremely optimistic about the opportunities to work with DigitalEx going forward, as cloud optimization is becoming a major pain point for customers. One of the main benefits is the agnostic nature of the platform, Asoka said.

“They are able to connect with all the big three public cloud providers - AWS, Google and Microsoft Azure, whereas their competitors may only have one or two. So we don’t have to worry about if a customer is on a provider that isn’t supported—that’s not an issue.”