Cloud expenditures have surged by 30% year-over-year, driven primarily by the rapid adoption of generative AI (GenAI) and other AI technologies.
As a result, nearly three quarters (72%) of IT and financial leaders report that these skyrocketing costs are becoming unsustainable, according to a study of 500 IT and finance professionals by Vanson Bourne, commissioned by Tangoe.
The survey results indicate managing private cloud expenses is becoming increasingly complex, with 80% of respondents finding it more challenging than public cloud management.
Despite this, 95% of organizations plan to repatriate some resources from public to private clouds in the near future.
The growing demand for efficient cost management has led 94% of cloud cost practitioners to call for an evolution in FinOps practices, emphasizing the need to manage SaaS costs alongside traditional infrastructure as a service (IaaS) spending.
Without addressing these financial pressures, organizations risk compromising the sustainability of their AI-driven innovations.
“GenAI and traditional AI technologies require a large amount of cloud resources to run effectively, but these hidden demands have the potential to bankrupt innovation,” explained Mark Troller, CIO of Tangoe.
He pointed out 93% of respondents want expenses from shared cloud services to be distributed across the departments and business units that benefit from them.
However, cost allocations are a key trouble spot–53% find chargebacks challenging and time consuming.
“This increases the importance of automation as a best practice,” Troller said. “Without the right tools, the administrative work necessary for cost optimization slows time-to-savings.”
Shadow IT and Overspending
The report also revealed shadow IT continues to contribute to overspending, with 38% of software as a service (SaaS) expenditures tied to unsanctioned software and 67% of productivity software licenses, such as Microsoft 365, going to waste.
Troller said to address this, companies need a more granular approach to usage analysis, enabling them to better manage their software investments.
“Optimizing these productivity tools requires deep visibility into how each license and application is being used,” he explained.
One of the key steps is understanding the type of license assigned to each user, such as E3 versus E5 licenses, and evaluating how often users engage with each sub-product—like Word, Excel or Outlook.
“Knowing who uses which applications and how frequently is essential to cutting down on unused licenses,” he added.
Beyond usage, IT and finance leaders must connect application insights with spending insights. This involves tracking how licenses align with overall IT budgets, vendor contracts, and departmental usage.
“Visibility into subscription auto-renewals and ensuring no unnecessary licenses are purchased above contractual obligations is crucial,” Troller said.
FOCUS on Managing Costs
He admitted managing hybrid cloud expenses can be challenging, as the full costs of private clouds—including virtual and physical expenditures—are often underestimated.
“Repatriation can seem like a fix, but it’s important to account for all costs, including virtual infrastructure, physical servers and data center expenses,” Troller said.
To control hybrid cloud expenses effectively, FinOps leaders need strategies that address both public and private cloud architectures.
This includes knowing when it’s more cost-effective to use one over the other.
“Cost management strategies must cast a wider net to be relevant and effective in a hybrid environment,” he said.
One key development is the adoption of the FOCUS specification, which standardizes data for costs, billing and usage across cloud platforms.
By applying these standards, organizations can better optimize hybrid cloud costs.
“With FOCUS, achieving hybrid-cloud optimization becomes far easier, even in complex, multi-cloud architectures,” Troller said.
