Escaping Egress: Hidden Cloud Fees Every CFO Should Know
As the saying goes, no one ever got fired for using AWS—but we should revisit that truism. In the era of the open cloud, smart enterprise-level companies are leveraging best-of-breed cloud providers to reduce costs and enhance their cloud stack with specialists. What does that mean, practically speaking? The ability to reduce one of your biggest line item expenses by up to 80%. As a CFO, I’m focused on strategically balancing operational expenses (OpEx) with a constant zero-based budgeting approach so my capital either fuels profitable growth or flows to free cash flows so I can drive shareholder value. Cloud storage, while essential, can be a significant cost center, and its billing structures often lack the transparency you need for effective financial management. My goal here is to demystify cloud storage costs, with a particular emphasis on the often-overlooked egress fees, and outline strategies for controlling these expenses. Understanding the true cost of the cloud The cost of cloud storage involves paying for data storage. However, the nuances of billing can vary significantly depending on usage patterns. We call an AWS bill a “cloud storage” bill, but it also includes a wide variety of configurable services, including compute, security, networking, analytics, database, and AI and machine learning (AI/ML) tools. Consider a company that relies heavily on streaming media. Their primary cost driver is supporting a vast library of content for on-demand streaming. According to EY, cloud hosting for a typical software as a service (SaaS) company costs usually account for 6%-12% of revenue. For businesses with substantial video media assets, just storage expenses can consume a considerable portion of revenue. According to Coughlin and Associates, archiving and preservation accounts for the highest slice of cloud storage spending in the media and entertainment space. Understanding your cloud bill is easier said than done Crucial—but difficult to actualize. Cloud storage bills from providers like Amazon are so complex they’re regularly 40+ pages. According to a report from CloudZero, when asked how well they can attribute cloud spend to different aspects of their business (e.g., customers, products, features), 42% of respondents said they’re only able to give an estimate. Even worse, over 20% said they have little to no idea how much different aspects of their business cost. This complexity has spawned an entire industry specialized in reducing cloud bills, and many enterprise companies have a job role dedicated to it. In my experience, even the best of those that occupy that job role have difficulty parsing the complexity. Egress fees and other hidden charges: Unveiling the financial drain While storage costs are relatively straightforward, it’s the hidden fees that can significantly impact the bottom line. Egress fees, incurred when data is transferred out of the cloud, are a prime example. These fees often lack transparency, making accurate budgeting and forecasting difficult. And, if you’re running applications in the cloud, you can’t avoid them: Users need to be able to move their data around. A recent survey indicated that 56% of IT professionals consider egress fees excessive, highlighting a widespread concern within the industry. At Backblaze, over 94% of our cloud storage customers were not charged any egress fees in 2024. Beyond egress fees, other charges can further complicate cloud billing. These include minimum storage duration fees and tiered pricing models. I’ve seen firsthand how a lack of clarity can hinder financial planning. As I often say to my team, “We can’t optimize what we can’t understand.” Overcoming cloud migration obstacles: A financial perspective Given these cost considerations, exploring alternative cloud providers is a financially prudent strategy. I recognize that change can be perceived as disruptive. There’s often a concern about migration complexity and potential risks. Some organizations become so entrenched with a particular provider that they’re hesitant to consider alternatives, even when faced with substantial cost disadvantages in their steady-state cloud bills. But, why the specific fear of cloud migration? There are always ways to manage the risk. In the grander scheme of IT and tech complexity, re-pointing an S3 standard API is considered an extremely low risk and low complexity effort. This is not like implementing a new ERP or data warehouse. It’s pretty straight forward, and your tech teams will have to make some time for a proof of concept and some testing. The second big blocker is understanding who you are working with from a reputational and security standpoint. Data is the most precious asset for most companies nowadays. How long has the company been around? How many customers do they have? What is the net retention revenue (NRR)? Any history of cyber breaches? And which information security programs and certifications are in place? Moving to the economics, the back-of-napkin math on the potential financial benefits of switching providers can be substantial. Reducing cloud storage costs directly impacts profitability. For example, if a video media company with storage costs representing 6% of revenue could cut those costs by 80%, that would translate to a 4.8% reduction in overall revenue costs. For a company with a 10% operating margin, this could increase it to 14.8%. That is a very substantial profitability improvement! I have personally operated and advised companies with hyperscaler invoices from the likes of AWS ranging from $4 million to $7 million annually. Reducing those expenses isn’t just incremental improvement; it’s a game-changer. In some cases, the return on investment (ROI) from migrating to a more cost-effective solution, including reduced egress fees, can be realized in as little as one quarter. Driving financial performance through cloud optimization As CFOs, we have a responsibility to scrutinize cloud spending and ensure it aligns with our financial objectives. This requires a deep understanding of cloud billing models, particularly the impact of egress fees. By demanding transparency, rigorously evaluating alternatives, and embracing change, we can effectively manage cloud costs and enhance shareholder value. It’s imperative to foster a culture of agility within our organizations to facilitate necessary changes. The potential financial rewards are significant, and proactive cloud cost management is a key driver of improved financial performance. About Marc Suidan Marc Suidan joined Backblaze in 2024 as our chief financial officer. He brings more than 20 years of operational, strategic, and financial experience with both growth start-ups and global Fortune 500 companies in the technology, media, and consumer industries. Previously, he was the CFO of The Beachbody Company (NYSE: BODi), and Senior Partner at PwC, where his clients included large and notable technology companies and private equity funds. Marc sits on the Board of the Silicon Valley Education Foundation and the Silicon Valley International School. Marc earned his Master of Business Administration from the Kellogg Graduate School of Management at Northwestern University and a Bachelor of Management in Accounting and Finance from McGill University. Connect with him on LinkedIn.