Has the price tag for innovation become untenable?
When venture-backed companies were chasing growth metrics, higher cloud bills were shrugged off as unavoidable. But the exuberance of the last few years is fading, and investors are adopting a more somber approach to their portfolio companies’ financials. Usage-based cloud and SaaS services, which have become a major cost center, are coming into the spotlight.
Dev teams need to face the music and start being financially accountable for the infrastructure and services they use. Meanwhile, CFOs and CTOs need to get ready to answer some tough questions at board meetings.
The practice of FinOps offers key ideas and tools that let you understand, design and forecast cloud spend in a way that’s aligned with company goals. By applying FinOps principles, companies have an opportunity to significantly improve their gross margins and chart a path towards profitability, as well as alleviate investor concerns around revenue metrics.
Gross margins are a board-level concern
Knowing your cloud unit economics is key to building an explainable, transparent model of your cloud costs.
The cloud and app ecosystems that have developed in the past decade help fuel innovation. They enable developers to build features, design experiments and run tests at breakneck pace, with minimal worries about infrastructure. However, this innovation comes with a hefty price tag and leads to a loss of financial oversight as teams struggle to understand which features or customers are driving up costs.
This has become a pressing issue today. Venture capital firms have grown reluctant to pour more funds into money-incinerating businesses. Gross margins, previously seen as a problem to be solved at some indeterminate point in the future, have become an immediate board-level priority.
What’s particularly troubling for investors is how opaque cloud spend tends to be: a single figure might encompass many internal and customer-facing use cases, making it impossible to coherently justify or optimize.
The shift from cost optimization to FinOps