March 1, 2022

Optimising cloud costs – alternate payment models in the SaaS industry

Optimising cloud costs and alternate payment models are top of mind for technology and data specialists. More organisations are looking at reducing data and storage waste while getting the best performance from their cloud platforms.

At present, the vast majority of the SaaS industry promotes a subscription payment model, where organisations pay a reoccurring fee each month for a set number of licenses or seats. In this article, we explore the disruption of these traditional payment models to weigh up the benefit to your organisation.

The history of the SaaS industry

The SaaS industry has exploded in popularity. The dependence on remote and hybrid work environments has seen organisations require a growing list of SaaS platforms to remain productive. Unfortunately, according to Zylo data, up to 38% of all SaaS licenses in a typical company go unused each month. This is an unnecessary spend and the ‘wastage’ has made specialists consider alternative cloud cost models.

Pay on consumption and the benefits to cloud costs and wastage

A pay-on-consumption model calculates and charges based on usage, not users. Made popular by utility companies, it is a familiar payment model.

The main benefit of a pay-on-consumption model in the SaaS industry is financial waste minimisation. Innovative players such as Slack and Snowflake, have already scrapped traditional payment models, and adopted new methods that benefit customers’ cloud cost management.

For example, Snowflake on Demand, a cloud data warehouse platform use a true ‘pay-on-consumption’ model, charging for:

  1. The cost of storage per terabyte
  2. The cost of compute resources consumed

Cost of compute resources consumed is based on the processing units used to run your queries or perform a service. You can scale your warehouse capacity up or down, depending on your on-demand requirements, and only receive charges for when your warehouse is running.

The financial benefits and reduction on waste are obvious, however, it will require flexibility from finance. There will need to be variability in budgets, and potentially the need to switch capital expenses to operating expenses. However, long term, the changes to the SaaS industry pricing models will be cost-effective.

Gain agility and adapt quickly to changing business needs

For companies that want to accelerate innovation and gain greater flexibility, pay-on-consumption is a desirable choice.

At present, the CEO is challenging IT leaders to make progress in digital transformation. Advanced technologies such as artificial intelligence, machine learning, and the IoT are emerging. Data centre professionals need to carefully balance the need to rapidly scale and accelerate technology adoption while managing and containing IT spending.

In these scenarios, pay-on-consumption can give your organisation the ability to quickly scale up, update infrastructure and remain competitive. As demand fluctuates, it is important to have a solution that dynamically adapts to changing requirements.

In turn, consumption-based pricing supports the financial goals of the business by matching expenses to revenue. A cloud data warehouse that promotes this model allows for bursts of capacity growth, transitioning workloads, and other variables.

Performance enhancements and high availability

Plagued by issues of poor data load times and query speed, data and analytic professionals always want to reduce the latency of individual queries. But what if you could take that a step further and maximise throughput, during peak periods?

Snowflake’s multi-cluster feature can automatically create additional virtual warehouses to take up the load. This improves performance as you can increase warehouse size and processing power on demand. Once the query or task is complete, in a faster/reduced period, the solution automatically scales back down to a single cluster and will ‘suspend’ once the task is completed. Once the Snowflake cloud data warehouse moves into ‘suspend’ mode, charges are also suspended, meaning you do not pay for idle compute time.

Only increasing warehouse size and processing power when it is required, you expedite the query processing time and reduce your cloud cost, improving performance.

Invested in your success

The relationships between your organisation and your SaaS technology vendor are likely to improve when you move to a consumption-based payment model.

Your SaaS industry vendor is invested in your success when you use a consumption-based payment model. Your reliance and usage of their product are what will make them money. This changes the dynamics of the relationship as instead of working towards selling you more ‘seats or licenses, their focus is on optimising your user experience and ensuring that you’re getting the most efficient use of their solution. The more value you gain from using their platform, the more invested they become.

It is worth considering how pay-on-consumption models could benefit your business. Consider not only the financial savings, but how you can improve processing times, and create greater business agility.

Minerva is a management consultancy laser-focused on business transformation. We help CFOs & FP&A teams with budgeting, forecasting, and planning, and Data & Analytics professionals deploy high-performing digital ecosystems. Our goal is to give you more time and resources to focus on profitable business growth and data-driven insights.


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