When companies move away from using data centers with fixed costs toward consumption-based spending in the cloud, they have to consider transforming their financial operating model.
Enter FinOps (Financial Operations), a business management software-as-a-service designed to access and analyze the costs of public clouds such as Amazon Web Services (AWS), Google Cloud Services and Microsoft Azure to help enterprises better plan, budget and forecast future spending.
What used to be simply called "cost optimization" is now in the process of being formalized within the industry.
This week, a dozen companies that provide cloud services and FinOps SaaS announced the establishment of the FinOps Foundation, a nonprofit group whose founding members include Atlassian, Autodesk, Gannett, HERE Technologies, Nationwide, Spotify and Gannett.
The organization's mission is to build a community of companies to exchange best practices and create standards for codifying and promoting cloud financial management.
"Finance teams are struggling to understand their company's cloud spend. AWS has 2,000 product SKUs, and there's been an explosion of apps challenging on all sides," said JR Storment, co-founder and general manager of FinOps service provider Cloudability, a technical advisor to the FinOps Foundation "FinOps is really about breaking down silos between finance teams, development teams and operations teams."
From 2017 through 2022, the combined annual growth rate for public cloud services is projected to be 16.6 percent, which will make this a $360.2 billion market by 2022, according to Gartner. A cloud price index at 451 Research tracks a half million individual line items for sale from AWS, Google and Microsoft.
Amazon recently began offering its own FinOps service so customers could analyze costs associated with AWS.
The need is real
"I regularly hear of enterprises opening their cloud invoices at the end of the month, seeing a bill of 100,000 line items, and being liable to pay a huge bill because some developer accidentally left a pile of virtual machines running," said Owen Rogers, a research director at 451 Research.
In theory, companies could execute a FinOps philosophy using spreadsheets to track spend, but it would be a "nightmare to deal with," Rogers said.
"The sheer complexity of dealing with all these line items, with consumption changing second-by-second, across multiple cloud providers, means it would be near impossible for someone to do this manually," he said.
IT working with the finance department
In a nutshell, FinOps allows a company's finance and IT teams to work together to quickly take up opportunities as they arise without blowing budgets by over-provisioning cloud services, according to Rogers.
More than something set in stone, FinOps is an aspirational state, Rogers said, where companies scale their IT resources to maximize opportunities for revenue, productivity and profitability, without "shooting themselves in the foot with spiraling costs that don't add value."
The FinOps space is growing because cloud services have exploded and companies that don't get their cloud use under control risk spending "a lot more money than they intended" and losing out to competitors who are able to respond to demand more quickly, Rogers said.
"For example, if [a] retail company has a sudden spike in traffic because they're selling a fashionable item of clothing, IT should have the freedom to scale the application straight away so they can capture the revenue right away," Rogers said via email. "If there is a painful approval process with finance to get budget to scale, then the opportunity will be lost. Data provides the first step to make good decisions, but the business having a culture of FinOps [allows it] to take advantage of this data, and the opportunities it creates."
FinOps Foundation membership
Along with the FinOps Foundation members, other companies in the space include Bellevue, Wash.-based Apptio and Boston-based CloudHealth Technologies, which was acquired last August by VMware. While the terms of the deal were not disclosed, Reuters reported VMware paid $500 million for the startup.
FinOps providers such as Cloudability offer applications that, through APIs, ingest data from cloud services. That data is analyzed and used to create a metered consumption model. That metered usage is then passed through a rate card. (Most large enterprises have contracts with vendors with specific cloud usage rates.)
"We also then take that rate card and usage to create pricing data," said Cloudability CTO Erik Onnen. "We use utilization data to drive right sizing. For example, a [cloud] database may be too large and over-provisioned, so that can be right-sized depending on your specific needs."
Lastly, data from a company's cloud use is downloaded into a database to provide single, auditable record of cloud services use for a specific time period. That enables it to forecast how much will be spent in the future, Onnen said.
Mike Fuller, a principal systems engineer for Atlassian, which provides software development collaboration platforms through the cloud, said becoming a member of the FinOps Foundation was an opportunity to work with other leading companies on a variety of FinOps and cost-optimization topics.
"It's an important time to get involved, especially given the growth of cloud overall, the growth of Atlassian's cloud offerings, and the emergence of FinOps as a field," Fuller said via email.
Atlassian currently runs more than 1,000 microservices on AWS. In 2014, Atlassian began its own FinOps efforts when it formed a cloud engineering cost optimization team. The centralized team was formed to solidify the connection between the engineering and finance teams so it could drive better processes and tooling for Atlassian's own internal cloud investment.
"The team has done exactly that and, today, continues to saves our company money each year," Fuller said. Atlassian has been sharing the lessons and best practices from this work publicly for the past couple of years, and we look forward to continuing it as our participation in the FinOps Foundation."