CAPEX in Cloud?

I have read in the news about a deal that Mix Telematics from South Africa, struck with AWS which requires a spending commitment of $1 million a year in exchange for AWS giving MiX Telematics a 9% discount across a few key AWS services, including EC2 and the DynamoDB database.

This got me thinking.. I am beginning to see a pattern emerge of where some large organisations buy these multi-year commitment to get a discount and to inject a level of predictability into their cloud bills. Some would argue this is a form the old on premise CAPEX model with OPEX spend model.

The question I have is: have these organisations truly transformed themselves to be cloud ready? Moving to the cloud means your financial processes shifting from CAPEX to OPEX model. I suspect the answer is not.

9% discount is not exactly a mouth-watering discount for a 5 year commit with a yearly $1 million spend. Cloud service prices are dropping at a rapid pace. What if the price drops to below the price you committed to in 2 years’ time? For the remaining 3 years you will be paying a higher price than everyone else. What if the business needs change and demand drops? You will be paying committed fees for resources that are not fully utilised.

The safety net provided by predictability of multi-year commit is nothing but an illusion. There are better ways to obtain desired predictability and cost control. Optimising the consumption of your cloud resources while maintaining the agility the cloud provides.

Moving away from on premise data centres, means letting go of the old ways of doing things in order to take full advantage of what the cloud has to offer.

 

Thank you for reading and sharing.

 

Regards,

Nick