How startups are cutting cloud costs, renegotiating deals with service providers

As global macroeconomic conditions worsen and funding slowdown continues, overall, startups are cutting their spending on an integral part of tech businesses – cloud storage – by renegotiating contracts with service providers like AWS and Google Cloud.

Many of these companies have slashed cloud expenses by 20%-30% while some growth-stage startups such as e-commerce platforms have brought down their cloud expenses by 50%, under pressure to control their cash burn, they said.

This has led to the top three cloud service providers – Amazon Web Services (AWS), Google Cloud Platform and Microsoft Azure – waging pricing wars to lure startups onto their platforms in the current downturn.

Hence, Cost management is critical for startups, especially given the substantial expenses associated with cloud services. Startups often spend significant portions of their budgets on cloud services as they scale and grow. To mitigate these costs, CloudIT advises the below variety of strategies:

  1. Rightsized Resources: One of the most common ways startups overspend is by over-provisioning resources. By constantly monitoring usage and employing tools that help in understanding consumption patterns, startups can adjust and allocate the exact amount of resources they need.
  2. Use Spot Instances: Services like AWS Spot Instances allow startups to use spare cloud capacity at a fraction of the cost. However, these can be terminated at any time if the capacity is needed elsewhere, so they’re best for flexible workloads.
  3. Reserve Instances or Commitment-Based Discounts: Cloud providers may offer discounts for startups that commit to spending a certain amount over a specific period.
  4. Cost Monitoring Tools: There are several third-party tools and native cloud provider tools like AWS Cost Explorer, Google Cloud Platform’s Cost Management tools, or Azure’s Cost Management and Billing service that can provide insights into where expenses are being accrued.
  5. Serverless Architectures: Instead of always-on servers, consider using serverless platforms like AWS Lambda, Google Cloud Functions, or Azure Functions. These platforms allow you to pay only for the actual compute time your application uses.
  6. Negotiate Deals: As the startup grows, it can have the leverage to renegotiate terms with service providers. Providers may offer credits or discounts to keep a growing company on their platform.
  7. Use Open Source Software: There’s a rich ecosystem of open-source tools that can sometimes replace more expensive commercial software.
  8. Review & Clean Up Regularly: Old, unused resources like snapshots, old machine instances, unused storage, or orphaned IP addresses can incur costs. Regular audits and cleanups can reduce these unnecessary costs.
  9. Data Transfer & Storage: Data egress (transferring data out of the cloud) can be expensive. Being mindful of how and where data is transferred can help in reducing costs. Additionally, using cold storage for infrequently accessed data can be cheaper than standard storage solutions.
  10. Auto-scaling: Instead of running at maximum capacity all the time, auto-scaling allows systems to scale up during high demand and scale down during lower demand.
  11. Architect for Cost: As startups architect for scale, resilience, or speed, they can also architect specifically for cost. This means making design decisions with cost in mind, which can include everything from the choice of database to the way data is replicated.
  12. Seek Cloud Credits: Many cloud providers offer credits to startups, especially those in specific incubators or accelerators.

Startups should remain agile, frequently reviewing their cloud strategies and consumption to ensure that they’re not only getting the best performance but also the best value. They need to balance cost-saving efforts with ensuring the quality and reliability of their services.

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