8 reasons your cloud costs are too high

Nobody wants to waste money on cloud services. But by failing to fully address a handful of basic issues, many IT leaders squander funds on cloud services that could be used to support other important projects and initiatives — especially as AI comes along to alter the cloud economics equation.

Is your organization needlessly throwing away money on cloud services? Here’s a quick rundown of common ways cloud spending is mismanaged.

1. Poor resource management and optimization

Excessive enterprise cloud costs are typically the result of inefficient resource management and a lack of optimization. Underutilized and/or overprovisioned resources are among the biggest contributors to high cloud costs, says Shreehari Kulkarni, principal consultant with global technology research and advisory firm ISG.

“Enterprises often purchase cloud resources — such as compute instances, storage, or database capacity — that aren’t fully used and, therefore, pay for more service than they actually need, leading to underutilization,” he says. Many enterprises also overestimate the resources required, leading to larger, more expensive instances being provisioned than necessary, causing overprovisioning.

Kulkarni believes that inefficient resource management can usually be attributed to both client and vendor. Cloud service providers are usually responsible for certain tasks, such as supplying the appropriate tools for cloud cost management, as well as forecasting, reporting, and cost transparency. Yet most of the responsibility falls on customers to leverage those tools and practices effectively while addressing cost optimization practices through governance, leadership support, and policy implementation.

Essentially, cloud cost management is a shared responsibility between the enterprise and vendor, Kulkarni says. “Enterprises must stay proactive and continually optimize their cloud infrastructure, while vendors must keep improving the tools and support they provide.”

2. Unanticipated AI expenses

One of the newest and biggest cloud cost challenges is learning how to properly develop and manage AI models and agents in the cloud.

“App developers may not account for the memory and processing demands required to operate private AI models in cloud services,” explains Troy Leach, chief strategy officer with Cloud Security Alliance, a not-for-profit organization that promotes the use of best cloud practices. “Anecdotally, I’ve heard of cases where consulting companies have been brought in to optimize the use of AI models because the resourcing cost increased by hundreds of thousands of dollars due to a lack of upfront planning.”

3. A poor digital transformation strategy

Excessively high cloud costs often stem from inefficiencies incurred during digital transformation initiatives, says Bakul Banthia, co-founder of Tessell, a cloud-native database-as-a-service provider. Migrating to the cloud without fully understanding workload requirements or optimizing database architectures can lead to overprovisioning and resource sprawl, he warns.

“As organizations modernize, integrating tools that monitor and manage costs across multicloud or hybrid environments becomes critical to keeping costs manageable,” he says.

Providers and customers both play a role in effective planning. “Customers may underestimate the complexity of managing cloud resources during digital transformation efforts, leading to inefficiencies,” Banthia says. “Vendors, on the other hand, sometimes lock customers into specific pricing models or services that are costly to exit.”

These challenges highlight the importance of planning for flexibility and avoiding overcommitment to a single vendor’s ecosystem.

4. Vendor lock-in — and lack of regular reassessment

When comparing cloud costs, it’s important to evaluate not just the upfront pricing, but also long-term factors such as operational efficiency and the risk of vendor lock-in.

“Assess whether workloads can be easily moved between vendors or scaled across different platforms,” Banthia advises. Use workload simulations and analyze total cost of ownership across scenarios to provide a clear picture of the most cost-effective solutions.

Cloud services should be reassessed at least quarterly, especially during periods of digital transformation when workloads and infrastructure needs evolve rapidly, Banthia recommends. “Regular audits will help uncover hidden costs, such as orphaned resources or underutilized databases,” he observes. “This ensures organizations can adapt their cloud strategies in real-time, reducing the risk of unnecessary expenses or reliance on inflexible services.”

5. Embracing cloud without a defined cloud strategy

The absence of a clear plan for deploying, maintaining, and expanding in the cloud is a primary reason for rising expenses. “Without a well-defined and reliable cloud strategy, costs can quickly spiral out of control,” says Karina Myers, modern workplace practice lead with Centric Consulting. “This is particularly true when a thorough total cost of ownership and FinOps analysis hasn’t been conducted to maximize the business value of cloud investments and enable timely, data-driven decision-making.”

A well-defined cloud strategy will provide a solid business justification by evaluating financial implications alongside key motivators and desired business outcomes, Myers says. “This strategic approach guides leadership through their cloud transformation journey, ensuring informed decision-making and alignment with organizational goals.”

Myers also stresses the need to establish a strong cloud foundation that supports both immediate deployment needs and future workloads. “This foundation should address security requirements, cloud governance, regulatory compliance, business continuity, and automation standards, ensuring a comprehensive and sustainable cloud environment.”

6. Poor alignment and management

Years ago, when enterprises operated physical data centers as a capital expense, it was relatively easy to align operations to enterprise strategy. “It’s important to treat your cloud infrastructure with similar care — carefully aligned and managed with a focus on business objectives and outcomes,” says Gerry Leitão, vice president of managed cloud services at statistical software provider SAS.

Leitão recommends a cloud approach that’s both centralized and federated. “It’s important to have guardrails established in terms of use so teams can optimize and stay compliant with your organization’s established cloud governance rules,” he advises. “If you understand your organization’s cloud consumption patterns, and optimize your cloud use thoughtfully, you can spin it up and spin it down as business demands change without racking up a staggering bill.”

7. Overprovisioning

Enterprises often overprovision cloud services without first conducting proper assessments, says Ankush Mathur, CTO at custom web and mobile application developer Techuz.com. “Optimizing resources based on application needs is essential to avoid setting up oversized resources,” he states.

Mathur estimates that reserved instances can reduce costs by between 20% to 40%. “Regularly monitoring services can help identify unnecessary resources that can be eliminated,” he notes. “Additionally, defining a threshold in autoscaling can prevent abrupt cost increases during scaling operations.”

Excessive costs frequently arise from customer mismanagement, such as misconfigured resources, a lack of understanding of pricing models, and poor optimization strategies, Mathur says. “Additionally, vendors may contribute indirectly by providing complex billing structures.”

Ineffective cloud monitoring can lead to unnecessary charges, Mathur warns. “For instance, some e-commerce applications scale their servers up on Black Friday, but forget to scale them back down afterward, resulting in unwanted expenses.”

8. Choosing the wrong cloud provider

Excessive cloud expenses often stem from the selected cloud provider’s cost structure, says Lenley Hensarling, technical advisor at NoSQL database provider Aerospike.

“This issue arises when organizations assume pricing is uniform across providers, or believe legacy systems can be migrated without adjustments,” he observes. “To avoid unnecessary expenses, it’s important to design with a clear understanding of workload-specific needs and align them with the cloud provider’s architecture.”

The ultimate responsibility typically falls on the customer, Hensarling says. “While vendors set complex pricing models, it’s up to customers to understand these models and design workloads accordingly,” he explains. “Overlooking factors like data transfer fees or volume discounts often lead to overspending.”

Reducing cloud costs requires a strategic approach, Hensarling says. “Begin by analyzing your workloads and selecting a cloud provider that best fits them.” With legacy systems, redesigning specific components might be necessary. “In hybrid and multicloud setups, align workloads with each environment’s strengths and pricing models while minimizing data transfer costs between platforms,” he concludes.