Call Participants

Ellie Brown

Eric Hanselman

Eric Hanselman

Welcome to Next in Tech, an S&P Global Market Intelligence podcast with the world of emerging tech [ lids ]. I'm your host, Eric Hanselman, Chief Analyst for Technology, Media and Telecom at S&P Global Market Intelligence and today, we're going to be talking about the Cloud Price Index and to explore that with me is Ellie Brown. Ellie, welcome back to the podcast.

Ellie Brown

Awesome. Thanks for having me.

Eric Hanselman

You're moving from all sorts of different topics. We had you on talking about quantum and now cloud. They're just all sorts of things that we can potentially dig into.

Ellie Brown

Yes. It's one of the best parts about this job, that I get to talk about all of the most fun, exciting stuff and computing is a pretty big box, so I dabble on the quantum, I dabble on the cloud and it's just a great way to look at the world.

Question and Answer

Eric Hanselman

And on the cloud side, there's a lot to talk about. It's been quite a while since we've talked about the Cloud Price Index. There's a lot that's been going on. But because of the long time and since the last we've covered it, maybe you could give our listeners a little bit of background into what the Cloud Price Index is, what it's all about, what does it represent?

Ellie Brown

Yes. So the Cloud Price Index is 1 of 451 Research's original tools and it existed in some form or another, all the way back since 2015. So we have a long ways of tracking this data that we look at. So it started at the end of 2015 at the time cloud pricing was all over the place. Cloud looked a little bit different back then than it does now. Still some of the similar services, but there was a lot of confusion about cloud pricing, whether cloud was any better as a use case service for users to interact with and how much that would cost and how much potentially users could save if they move their workloads to the cloud.

Eric Hanselman

You seem to be implying that there's not confusion today.

Ellie Brown

No, we're getting to that, but that was the impetus for creating the tool, so yes, still much confusion. But that's the driving force and has always been the driving force behind the Cloud Price Index is to take all of that confusion and try and help distill all of this pricing information about the cloud down for our users and hopefully provide some transparency and actionable insights for users trying to manage their cloud costs to the best of their ability.

Eric Hanselman

Well, to the best of their ability, but also, the thing that you pointed out is really, well, a couple of important parts. One, the longitudinal data in the history. I remember back in the very early days when we were looking at the growth of the number of different products and really the SKU counts of exactly how many different products were all the various vendors are actually offering, those numbers are dwarfed by what we see today.

Ellie Brown

Yes, exactly. So when we first started the Cloud Price Index, we only tracked a couple of different services in North America and over time, it has definitely evolved. So right now, every quarter, we pull over 5 million lines of raw pricing data, so much, much more than at the beginning and we filter all of that down into those insights because it's all really good information, but that is a lot of data for anybody to work through.

So pulling out the key prices, making comparisons between similar services, you don't want just this huge data file you want, information to help you figure out what you want to do with your cloud and how much that's going to cost. So we pull from AWS, Google Cloud, Azure, IBM and Alibaba to give us that nice, good global spread of some of the biggest cloud providers in the space right now.

Eric Hanselman

Well, in that, the index itself is based on a set of core configurations that are really not dissimilar to the Consumer Price Index in terms of how it's built.

Ellie Brown

Yes, exactly. So I actually make that comparison quite often when I'm trying to explain the Cloud Price Index and it's frankly not helped very much because we sometimes simplify Cloud Price Index to CPI, which is the same as Consumer Price Index, lots of confusion there.

But the Cloud Price Index also uses a basket of goods mentality, which is one used by the Consumer Price Index, which has obviously been in the news recently, along with all the inflation numbers, so that's usually a nice, good correlation that people are able to track and follow. So they're very similar in scope that way. The Cloud Price Index just focuses on the cloud naturally.

Eric Hanselman

And because of the growth, there's actually been some significant changes. Actually, some of those relatively recently in what's been taking place in CPI and the way the data gets presented.

Ellie Brown

Yes. So we used to present all of this information in an Excel document, which is great and good and standard. But as we pull data every quarter for the past eight years, that Excel file gets really, really big, lots of tabs along the bottom and it's hard to see that really good longitudinal data that we do have. It just didn't track very well. As the Cloud Price Index has grown and evolved and we've had this really big pool of data, we wanted a new way to represent it and allow easy access for our users to really dig in and interact with the information in ways that work best for them.

So at the end of last year, we transformed the CPI. We moved it outside of its just little Excel box and plugged it into Power BI, which has been really phenomenal because we can have that big dataset in the back end and then users can interact with just the pieces that they want to look at. We have a lot more visual options for them in terms of graphics and charts that help really represent the changes that we've been seeing, not just in a numerical format, but in a visualization that gives you a really good broad level and high-level view of all of the big moves in this space.

And with the nice filters that we have on Power BI, users can really dig in and focus on regions or services that they care about. So we track regions all around the world, maybe you're a European user and you really just care about European cloud prices, we can filter that down in a much easier way and you can really let it be customized to the cloud prices and services that users care about.

Eric Hanselman

To your point, being able to actually leverage the full set of data but to be able to do it with tools that aren't as overwhelming, that don't put as much of a burden on spreadsheet wrangling, to be able to actually get that all done, that the new graphics are great and just simply being able to actually dig into the data with that additional level of detail and at the same time with a level of ease that now makes it a lot simpler to be able to extract insights into movements in these markets, how you actually plan, what your expectations are about where things are headed.

The thing I always found fascinating is all of the tracking of new service offerings that kick up and really watching what's happening in each of the providers, seeing where they're headed and watching as you get new instance types that crop up and watching how that evolution actually happens to move forward.

Ellie Brown

Yes. That's one of the things that I've really enjoyed even personally with the new visualization suite is it makes my life as an analyst much easier because I can go in and see right off the bat, well, we've added this service. There's a lot in generative AI of course right now, but also just regionally and globally where these hyperscalers are choosing to put their services and if that has changed over time.

So it's really great as that high-level tool to see that change happening. It's almost a cockpit-level view where you can see everything happening all at once and see where those intersections take place, which is excellent for writing reports and putting analysis together.

Eric Hanselman

It's one of those things that watching services rollout across regions because, of course, you get the initial announcement to whatever the capability happens to be, but then it's not available in all the regions yet. And the great thing about some of the CPI data is not only can you watch pricing trends, but you can also watch the availability of functionality within the regions and watch the trending there as well.

Ellie Brown

Exactly. And we actually have a lot of our users that that's their primary use case for the Cloud Price Index is they use it to track and see where these regions have these services rolling out and sometimes get ahead of the game. If there's a big hole in a region that doesn't have a specific service or service type, some of these alternative cloud providers can hop in there and use that to inform their own product road map, which is an interesting take on the tool. It doesn't have to be just pricing to your point, it's also the ecosystem as a whole.

Eric Hanselman

Speaking of use cases, we've talked to Melanie Posey and Jean Atelsek. We've been on talking about what has been this, I keep saying nascent movement, but now if we think about FinOps and where it's gone, this has really moved beyond nascent to now being a much more mainstream effort to be able to manage cloud costs. How our focus is on FinOps changing how people are leveraging CPI and some of their approaches to managing cloud.

Ellie Brown

Right. So the big thing with FinOps is the push for standardization and transparency. It's this two-pronged approach. One of the nice things about the Cloud Price Index is that we've been doing that standardization process for a long time now. We do apples-to-apples comparisons of these services and we sort them into categories, we standardize how everything is put together and frankly, it has been a lot of work because there's all sorts of different cloud provider preferences for how services are named and even the units that they're sold in.

So it's been quite a lift to be able to make those comparisons, but with FinOps, the push is to simplify that so it's not that heavy of a lift, users will have more insight, they can compare across the board. So from the Cloud Price Index standpoint, that's a great thing for us because it makes my life much easier. There's a lot less that we'll have to do to dig through that information and try and provide those comparisons.

The second thing that FinOps is really pushing for is that transparency and cost. As we talked about at the beginning of this chat, cloud costs have been nebulous, they're confusing, there are so many services.

Eric Hanselman

It's almost a cloud [ heaven ].

Ellie Brown

Imagine that. I wonder if someone did it on purpose, but yes, it's been crazy. There's just a lot of confusion and as a consumer, if you're purchasing something and if you're spending that much money, these cloud services, they can make a substantial part of any enterprise budget. So obviously, you want transparency into how much you're paying, how much you will pay and make sure you're getting a good bang for your buck.

So the Cloud Price Index really neatly fits into that tenant of FinOps because it provides that transparency. It provides a one-stop shop to showcase where prices are high, where they're low and allow users to compare among regions and even across cloud providers and have that insight without having to do that digging in that manual work that up till now has been required.

Eric Hanselman

And having that data normalized across providers also gives people the ability to not have to do those instance comparisons of, wait a minute, this is like this, this is like that and to do something that's at least a little more objective comparison in terms of what's available on different platforms and what they should be looking for and what they can expect.

Ellie Brown

Yes, exactly and we've seen a lot of hybrid cloud users that have these combinations. They find that one cloud provider might be ideal for a specific section of their cloud usage, but maybe another provider has better options elsewhere. And so allowing that easy access into that information, it can enable these users to most effectively roll out their clouds, not just for price, but for performance and know that they're getting not just a good deal, but also a service that will work the way that they want it to work.

Eric Hanselman

And from a FinOps perspective, also one that you've got some visibility into what those future costs look like, if you know what the sizing is going to look like, you can help to figure out exactly what your overall deployed cost might look like and take a look at that deployed cost and see how it varies by region.

It's one of those interesting things that had been client conversations where you've got folks who are looking to roll out globally and they're trying to figure out both what those cost differences are going to be. You're trying to get applications that are closer to end users so you want to be in region. You may have data sovereignty concerns so you might want to be in a particular region. But of course, if the variations in terms of cost, it's useful to be able to build that into your budgets to understand what's going to happen when you actually make those changes.

Ellie Brown

Yes. It all depends on that information. The more information you have, the more access to that information, the easier it is, the better your choices are going to be as you roll out.

Eric Hanselman

So we talked about some of the high-level aspects. I'm curious what are the recent trends you're seeing in data? Well, what are some highlights about what you've seen coming out of the CPI recently?

Ellie Brown

Yes. So one of the biggest things has been this ongoing story for the past couple of years. We've had a lot of replacements of virtual machines. So we, as the Cloud Price Index team, don't just track a standard VM, the same one that we were looking at in 2015. That wouldn't make any sense. We want to be tracking the information and the standardized use case for these instance types. So as new VMs roll out, we keep a close eye on those to determine when they're actually being used and adopted by the market so that we have actual real-world pricing information.

We aren't just using it out of date VM instance for our pricing benchmarks. So we've been seeing the replacement of these old VM instances with newer versions and that's been happening for years. But interestingly, over the past couple of years, those instance types have actually been priced much higher for the newer instances.

Back in the day, we used to see this just really sharp decrease in price. So new instances would roll out, but they'd be priced cheaper than the older ones and so the cloud pricing was actually going down substantially. And early last year, that trend shifted and these newer instance types are priced higher. They do have better price performance according to the hyperscalers, but they're pricing higher, which is driving the benchmark up.

So that's been a really interesting shift in mentality that we hadn't seen up until recently pivoted and turned that VM instance understanding on its head. So those have gone up over time. So that's been very interesting there. It's just this break with the historical trend.

Eric Hanselman

It's been one of those tropes in technology. It's new generations are faster, smaller, cheaper and that had been the trend on the cloud side, but there is now a move by some of the providers to be able to hang on to some of that value and there's also that shift in terms of an expectation about how they're going to be adapting their fleets of back-end hardware to support that.

Back in the day, there was an awful lot of replacement in the environment itself, so trying to maintain older instance types maybe created a lot more overhead. Now you've got an environment where just simply the scale of most of these environments can actually maintain those older instance types so there's less pressure to get people to move off them. And they now get to go grab or retain a bit more of that value with the new instance types and granted on a cost per compute, yes, you're doing better. But it's not going to be the same dramatic shift that you saw in new introductions years ago.

Ellie Brown

Yes, exactly because you aren't getting that compound pricing decrease so you aren't getting the benefit of the cost per compute along with the cheaper instance price. It balances out there. So that's been really interesting to keep an eye on and it's been fun to watch it, have these VMs sweep across the globe. They'll roll out in one region and then they'll go to a new region and then spread out slowly over time.

I'm not sure why, but France is always the last region that seems like in Europe to receive any of the new stuff. So that's the Cloud Price Index tip of the day. France is always the last rollout region. So that's been fun to watch.

Eric Hanselman

Interesting. If there's a way, it reaches the French shores last.

Ellie Brown

It does, yes. And then, of course, the second thing is AI, so there's just been such a...

Eric Hanselman

I've heard about that.

Ellie Brown

Just once or twice. No, it's touching the cloud world as well, no surprise, but it's actually led to some really interesting changes in the Cloud Price Index as generative AI has really rolled out. The hyperscalers have really shifted their funding away from a lot of their previous expansion plans in favor of pushing that generative AI agenda. So we've seen this global slowdown of regional expansion instead of rolling out new data centers. They've actually been closing in some instances, local regions around the world so that they can reallocate that funding to generative AI projects.

Eric Hanselman

Interesting. It's one more place where a generative AI is being disruptive in so many different dimensions.

Ellie Brown

Yes. So this quarter alone, I've been digging through the data and Alibaba just announced that they're shutting down their India region and their Australia region. So that's definitely going to make some waves over in the Asia-Pacific area of the globe.

Eric Hanselman

Wow, retrenching. You got to be able to target investment in places where you're going to optimize its performance.

Ellie Brown

Exactly.

Eric Hanselman

So in terms of leveraging the CPI, I'm curious, what are your thoughts about how organizations should really think about working with the CPI and building out infrastructure and dealing with cloud more broadly?

Ellie Brown

Yes. So a lot of the FinOps push has naturally gone around provisioning, making sure you're only provisioning for the instances you need and that's definitely a great start. But from the pricing side, you also want to make sure you're doing your homework and getting the best deal. As with anything, it would just be a shame to have this other alternative that has the same performance, is in the same location that you want it to be and is much cheaper, but because you didn't look into it, you're missing out on that cost there and it can really add up.

And secondly, make sure users are taking advantage of reservations and commitment discounts. The pricing is just so much better if you have reserved instances or take advantage of those commitment discounts. And the hyperscalers have really made a big push in the past year, so to make those discounts and those programs a lot more flexible than they used to be, it used to be that if you bought up a bunch of instances all at once and you didn't use them, you're stuck.

There's a lot of exchange programs and opportunities to have this flexible pool of usage that you still get a really good discount on, so there's a lot more flexibility there than there has been and it's been only recently that, that shifted, so making sure that users are taking advantage of that as an option because it is a really good option for that.

Eric Hanselman

So it's one of those real changes in pricing strategy in terms of what had been the reserved instance lock in with that flexibility. Now it's something that you really should be considering it sounds also like providers are starting to make those benefits much better and the price differential higher.

Ellie Brown

Yes, exactly and it really is that shift away from having to make those reservations toward these bigger commitment discount programs and savings plans and stuff like that. So there are a lot of options out there and they change pretty rapidly, so it's worth looking into those as you're spinning up new instances or even if you've got some old programs that you're looking to maybe make a little bit more affordable, just checking to see if some of those commitment discounts would work for users there.

Eric Hanselman

That makes sense. A lot of things to manage when you think about the broader questions around infrastructure.

Ellie Brown

Yes, always. And then one more thing that I'm going to give a little push there, make sure as you're looking for regions that are cheaper. Also, keep an eye out for some of the green and low-carbon regions. A lot of the cloud providers are now making it pretty easy to find those regions that run on renewable energy and have fewer emissions associated with them. So while you're digging around and trying to optimize, maybe you don't just optimize for price but also optimize for carbon usage as well.

Eric Hanselman

Well, hey, the sustainability becomes a much larger part of operating equations for most organizations out there but one more thing to keep an eye on.

Ellie Brown

Yes, exactly.

Eric Hanselman

Well, this has been great, Ellie and thanks for all the perspectives. A lot of data to work with and I will point our listeners at the CPI to get some background in terms of what it offers and where it fits.

Ellie Brown

Great. Thank you for having me.

Eric Hanselman

Well, thanks for being on it. Thanks for being back.

Ellie Brown

Yes.

Eric Hanselman

We keep talking about the frequent guest program. We'll see. I got to get something organized here.

Ellie Brown

That would be great.

Eric Hanselman

Well, that is it for this episode of Next in Tech. Thanks to our audience for staying with us and thanks to our production team, including Sophie Carr, [indiscernible], Gary Susman and the Marketing and Events teams and our agency partner, the One Nine Nine. I hope you'll join us for our next episode where we're going to be looking at what's happening at the Kagan Broadcast and Telecom Conference. We'll be coming up soon. I hope you'll join us then because there is always something Next in Tech.