The economics and challenges of cloud migration never been more in focus

The evolution of software delivery from physical media to cloud-based subscriptions highlights the shift from perpetual licenses to subscription models and can often costs two to three times more than other cloud expenses.

Cloud economics and migration challenges have never been more in focus, according to the Cloud Migration Cost Insights panel at Nutanix .Next 25.

Organisations that have large cloud infrastructure-as-a-service footprints, or have yet to migrate to the cloud, must have individuals who are aware of the economic and commercial challenges. This includes third party licensing and infrastructure costs, which can break the cloud business case.

During the panel discussion, Evolve Cloud Services founder Steve Lohr said software licensing costs are typically about two to three times the cost of all the other costs of the cloud combined.

Headquartered in the US, Evolve has additional offices in New Zealand, Spain, UK and Canada.

Evolve partner with AWS and also worked with Nutanix for the last couple of years as part of the vendor’s program it helped to develop.

“It’s called the Migration Optimisation Assessment that looks at NC2 on AWS, NC2 on Azure and we’ll look at NC2 on Google Cloud as well,” he said.

Before Lohr founded Evolve in 2020, he spent 15 years as a Microsoft partner.

“I used to run the delivery practice for a different organisation,” he said. “We helped develop and launch a program called the Software Asset Management.

“That … eventually evolved into more of an Azure sizing exercise in the later years of that program.

When in 2019 Microsoft started making “pretty significant rule changes to their licensing that were advantageous for themselves, not so much for other cloud providers”, Lohr created Evolve to help support partners who moved from Microsoft to AWS during this period.

According to Lohr, Evolve’s collaboration with other partners is its “sweet spot and niche”.

“In addition to instance mapping, instance sizing for the cloud, we also take into account the impact that software licensing has on cloud workloads,” Lohr said.

“It plays a huge impact, both from a license compliance perspective, but certainly also from a cost optimisation.”

The software licensing costs are typically about two to three times the cost of all the other costs of the cloud combined, said Lohr.

Lohr noted that software licensing often costs two to three times more than other cloud expenses.

“[It’s] very important to get those right, and it’s also really the biggest chunk that we have to optimise,” he said. “We see a lot of TCOs [total cost of ownership] out there, but they strictly look at cost.”

According to Lohr, when calculating TCO for cloud services or infrastructure, businesses usually focus on the core components only.

“They’re going to look at compute, network, storage and all those are absolutely important to TCO, but considering licensing is about two to three times the cost of that, if you leave that out, [it] can really turn the TCO upside down, ” he said.

If organisations are coming from an on-premise environment to cloud environments with a different licensing model, they will encounter problems.

“You’re going from a host-based licensing to a per-VM [virtual machine] licensing,” he said. “The customers simply don’t have enough licensing to support that,” noted Lohr.

For example, a customer would need to spend, on average, US$1.4 million on SQL server licensing to purchase the necessary licences for their cloud environment.

However, Lohr said shifting to per-VM licensing from host-based licensing, especially for large organisations, can lead to unexpected costs, which can be as high as US$10 million for SQL Server licenses alone.

“Eighty-seven per cent of the time, we’ve been able to figure out a model where they could move to the cloud and not have to buy an additional SQL license,” said Lohr. “With all the assessments we do keep very detailed stats and do a lot of analysis around the faucets and so forth.”

That’s why there was a necessity for understanding the right-sizing workloads and adapting strategies to achieve the best total cost of ownership, he noted.

This shift from physical on-premises environments to cloud-based subscriptions often leads to significant changes in cost structure requiring changes to cost structures.

For this shift, there needs to be a foundational understanding of the business case, noted Accenture managing director of global hybrid cloud leader Gopal Pingali.

“In terms of the business case, the first level of considerations are the licensing cost and migration cost,” he said.

That’s where a business will look at the cost of licensing, alternatives, migration costs.

“There’s the operations model of running the environment, the automation, and the level of automation that is introduced, and what is that change going to be,” Pingali said.

“Often forgotten, but very important, is the human element. [This] [requires] retraining [staff] and making them comfortable in the business case.”

If an organisation is going to make a change it might as well be done right, noted Pingali.

“I might as well engineer to have ongoing visibility and make it part of how I run my environment,” he added.

Pingali explained there were three key phases in tracking and reporting on costs and return on investment.

Phase one involves evaluating the clear business case for the project. This is where Pingali recommends defining the strategy, examining the risks and assessing the business case.

“We’re seeing anywhere from 20 per cent to 50 per cent in cost savings in terms of that business case, based on many dozens of engagements we’ve done,” he said. “That becomes very important. You’ve really considered it, and you have a solid business case and return on investment that you’re able to present, whether it’s to the CTO, CIO, or business stakeholders.”

The second phase is about running a lot of migrations, noted Pingali.

“Once they’ve completed the migration, it’s about actually delivering it on time and achieving success in that migration,” he said.

This where questions like what was the cost and time involved. As well as what was achieved.

“We have a number of cases where we’ve seen over 99 per cent first-time migration success, which really proves value in the business case,” he said. “Then you see the actual cost involved in the migration.”

The third phase focuses on continuous service delivery after the migration is completed, said Pingali. As a service provider, these types of migrations require achieving value on an ongoing basis for the long-term.

Lilia Guan travelled to Nutanix .Next 2025 conference as a guest of Nutanix.