Capital markets firms wary of cloud overspend

Compared with a decade ago, the cloud is now a mainstay of tech strategy at most financial firms. But this doesn’t mean they have budgeted for all the costs associated with it or considered how to navigate the related expenses properly. 

And for some, the tech shift hasn’t proved to be a cost-saving measure.

Speaking to a packed room at this year’s North American Financial Information Summit in New York City, Prasanna Ramaswamy, head of technology and data at CPP Investments, an investment manager for the Canadian Pension Plan, said, “As you think about migrating your workloads to the cloud, a lot of organizations have their own level of complexity, and generally, organizations end up in this hybrid state where the migration takes years or they’re doing [things] partially on cloud, then on-prem.”

Ramaswamy was on a panel looking at the topic of developing a cost-effective cloud strategy. 

“And people don’t realize that there are specific costs for data transfer or egress costs as you pull data out from cloud,” he added. It’s those costs, Ramaswamy said, that can shape the journey of what data lives on-prem versus in the cloud.

People don’t realize that there are specific costs for data transfer or egress costs as you pull data out from cloud

Prasanna Ramaswamy, CPP Investments

Steve O’Bott, global head of investment and financial data architecture and chief data architect at Vanguard, drew a line between the insurance policies of homeowners and the cloud deals of capital markets. “How many people’s homeowners’ insurance or renters’ insurance went up last year?” he asked the room. A good number of hands were raised. “And roughly by how much?” Twenty-five per cent was the clear answer, with natural disasters and building and labor costs contributing to the rise.

Just as someone would call up their insurance company to check whether they were paying for things they didn’t need, the same can be done for the cloud. It’s what O’Bott refers to as a right-sizing exercise. “It’s a lot easier to do after you’ve migrated your workload. Usually we buy something bigger, and you can always shrink it back, which is nice,” he said.

Bill Murphy, managing partner at Cresting Wave and former CTO at Blackstone, told WatersTechnology in 2021 that perceived discounts offered by cloud providers can create overhead issues that lead to overspending. Cloud’s standard model of elasticity—one of its main selling points—promises that customers only pay for what they use when they use it, but it also means there’s rarely a fixed price, making budgeting difficult. Additionally, Murphy pointed out that cloud providers like AWS offer price concessions for years-long commitments to utilize their infrastructures. “Everybody likes a deal, but then people over-buy and then they’re sitting there with all these unused database instances,” he said. On the other hand, some firms end up under-provisioning.

According to data from Gartner, public cloud spending by end-users reached an estimated $563.6 billion in 2023, with a forecasted growth of 20.4% to $678.8 billion expected this year. And the growing interest in generative artificial intelligence means Gartner expects companies to increase their infrastructure scale among the major providers.

O’Bott recommended conducting right-sizing exercises quarterly, but said some teams at Vanguard have started doing the practice monthly. “When their bill comes in, it’s almost like your water bill at home—you know how much to adjust on it,” he said.

Julia Bardmesser, former senior vice president and head of data, architecture and salesforce development at Voya Financial and current adjunct professor at the NYU Stern School of Business, said that moving to the cloud can ultimately appear more like a compromise. It may look cheaper and easier to do a “lift and shift”, but costs can materialize later on. Then again, paying upfront could mean re-architecting and designing in the cloud. “What’s the ROI on that exercise if all you get from it is moving to a new environment?” she said. “All of it’s solvable, but you have that trade-off that you have to work with.”

For Bardmesser, the shift to cloud has not been a money-saving exercise. “If you’re making your business case by cost savings, you have to have a really in-depth understanding of your current course,” she said. And in her experience, she said many firms lack the necessary understanding of their own course that would allow them to compare it to what they might achieve in the cloud. Bardmesser recommended not migrating to cloud simply in order to save costs, and also not to view it as a data center move. “It’s a play for a new capability, for competitive advantages and for differentiation,” she said. “There has to be a business goal that the cloud move is supporting.”