Tangoe’s CIO Mark Troller answers six key questions to unpack today’s AI technology trends and their impact on IT spending.
How has cloud infrastructure adoption impacted IT spending trends, particularly in the context of AI and GenAI?
AI and Generative AI are driving cloud purchases higher, and IT spending is spinning out of control as a result. This is because four key dynamics have come together all at once:
- GenAI and AI demand large quantities of compute power, storage, and network bandwidth. They’re known as being a cloud resource hog and highly reliant on the cloud’s scalable resources to function. My other another article explores this in depth.
- GenAI and AI solutioning are entering an already problematic situation. The pressures of accelerated innovation and agile development practices play off each other, giving IT engineers and DevOps teams the freedom of unchecked purchases via self-serve infrastructure. The result of this has been ad-hoc deployments of public cloud infrastructure and overbuilt solutions that are under consumed, generating waste and overspending.
- The scalable nature of on-demand cloud resources creates a volatile financial environment for GenAI innovation. When the cloud is infinitely scalable, so are costs. As a result, IT and finance leaders face unpredictable expenses consuming larger proportions of the IT budget. These aren’t just anecdotal observations. Gartner says more than half (50%) of IT spending will shift to cloud by 2025, and IDG says two-thirds of CIOs are spending more on cloud services than they budgeted.
- Adding fuel to fire is the rising cost of cloud services – triggered by inflation and our unsteady economic environment.
What are the risks associated with unpredictable cloud costs triggered by AI adoption, and how can software and services mitigate these risks?
The risks are enormous — digital innovation that becomes financially unsustainable for the business. Without careful cost monitoring, new investments can bankrupt innovation, as spending quickly goes through the roof. So, it’s easy for CIOs to negate their own vision and strategy, as short-term thinking can undermine long-term success.
Innovation leaders seeking durability need to be hyper aware of AI’s addiction to the cloud and the hidden costs required to support it. This is why the FinOps strategy is rising in popularity – it’s a framework that helps IT and finance leaders work together in getting a tighter grip on cloud spending, inserting financial governance practices into innovation.
But the problem for many companies isn’t their cloud cost management strategy, it’s how they action it.
While the FinOps principles are sound, it’s always easier said than done. Research shows companies that deploy a purpose-built FinOps technology platform (rather than building their own solution or simply using native tools) are more successful at cost control.
This is where cloud expense management software and services assist.
Solutions include multi-cloud cost visibility and FinOps capabilities powered by AI analytics and automation. As the machine helping operationalize the FinOps Framework, cloud expense management software accelerates many of the manual processes needed to:
- Catalog all cloud assets, services, invoices, and spending trends in one place for holistic views enabling strategic insights
- Dissect complex infrastructure invoices across multiple cloud service providers for easy cost comparisons — leveling the IaaS information playing field requires data normalization techniques that drive at unit pricing
- Dig into unused cloud resources and abandoned SaaS licenses, pinpointing waste with usage optimization and cloud cost reduction strategies at the forefront
- Implement governing practices – for example creating thresholds and alerts to proactively prevent cost overruns
- Allocate or charge cloud costs back to the business units and departments responsible for them.
Cost allocation is important to call out.
When the IT budget simply “eats” all the cloud expenses CIOs can’t loosen the purse strings for more investments in AI and innovation. After all, the best and most reliable source of funding for innovation comes from within. Chargebacks are a great way to restructure your budget and start making room for more investments in technology. Here’s an article on using cost allocation to kickstart tech ROI measurement.
Tangoe partnered with Foundry to study the impact of cloud sprawl. What are the key findings of that research, particularly concerning cloud infrastructure and software investments?
Our recent research study, conducted by Foundry, confirms that the cloud is IT’s biggest spending problem. Data shows that IaaS and SaaS are the leading drivers of IT spending – outpacing new investments in mobile devices and telecom services. Respondents predict double-digit spending increases over the next couple of years with cloud infrastructure (20%) and software (16%) investments as the highest categories of spend.
Read the research summary here.
Another study found that late payments are an issue for most companies. How does this trend affect operational performance and business continuity, especially in cloud, mobile, and telecom services?
Late payment notices and fees are the initial warning signals vendors give their customers before their services are unplugged. When customers aren’t responsive, vendors can punish them for being financially negligent, which leads to service outages. Because telecom, mobile, and cloud services typically support critical business tools and applications like phones, computer connectivity, and video conferencing outages can quickly bring a business to a standstill. This impacts revenue, production, and the bottom line.
That study uncovers two interesting findings in this area:
- First, this problem is widespread: 85% of organizations experience IT service outages due to late payments. In other words, the vast majority of companies struggle to pay their bills on time, which has a tangible and negative impact on their business operations.
- Second, the findings show the incorporation of automated processes streamline efficiencies to avoid costly IT outages. Automated processes can notably reduce the likelihood of regular outages by a rate of at least 22%.
What are the benefits of utilizing a fully managed service for IT expense management, and how do services compare to in-house programs?
Data shows that the two key benefits of a fully managed ITEM service are faster time to business insights and faster time to cost savings.
In-house programs are often inferior to outsourced services because they lack the right tools including AI automation and integration but also experience in knowing how to normalize and analyze the mountains of cost and usage data. Then there’s also the matter of automating the responses and action needed to implement service changes quickly, so you can capitalize on the savings opportunities without delay.
Faster Time to Insights
Automated data ingestion overcomes visibility challenges. Integrating disparate data sources to achieve comprehensive expense visibility across all cloud vendors is key, including standardizing data to identify unit costs and facilitate meaningful cost comparisons. Given the myriad configurations possible for an IaaS server, achieving this manually or with an in-house solution is nearly impossible. AI helps pinpoint waste, compare thousands of IaaS SKUs to find the most cost-effective cloud infrastructure configuration, and establish a perpetually evolving hyper-automated cost optimization environment.
Faster Time to Savings
Once you determine IT waste, then it is time to turn those insights into real savings. Taking appropriate action on cost-saving recommendations often involves a painstakingly manual process. It requires time and effort to make changes to services, reclaim and reallocate unused SaaS licenses, recover old mobile devices, renegotiate contracts, and even switch to new providers. How quickly you can act on the insights determines how fast you can put dollars back in the budget, and there is an opportunity cost associated with speed.
What good are insights if you lack the resources to act on them? Who will handle the ongoing, cyclical workload that comes with saving costs when it’s work that never truly ends? Does your ITEM provider offer professional services, and to what extent? These are important questions to consider in optimizing your IT spending. Tangoe offers AI tools that automatically act on cost-savings recommendations with a click of a button. So, you save money right away. Learn more on that here.
Who are the key stakeholders responsible for developing an outsourced ITEM strategy and what are some best practices for success?
IT leaders and finance leaders are the primary stakeholders for IT cost optimization, but procurement leaders are also involved. IT engineers and DevOps teams can also be considered the frontlines of cost management – they’re key influencers of solution design and any affiliated purchases.
In the end, you want to avoid managing IT costs using point solutions and seek out integrated and automated solutions that speed up administrative data gathering, analysis, and response. Bridging the needs of IT, finance, and procurement teams is also key in creating a culture of cost accountability. Here’s an article on how to foster a FinOps culture.