The Securities & Exchange Commission (SEC) wants to increase transparency on a company’s carbon footprint, which ultimately would impact valuations.
In late March, the SEC released a proposed rule that would force companies to release climate-related disclosures, including information about their carbon footprint and their risk exposure.
The goal is to add tangible value to the impact and risks of climate on a company’s operations. If the rule passes, it would likely put a premium valuation on companies that make sustainability a priority.
The legislation, combined with recent highs in energy prices, got me thinking about the three years I spent in the energy space. I have spent most of my career on the software side of IT operations and cloud management. But from 2014-2017, I worked for EnerNOC (now Enel X), an energy intelligence company, and got a crash-course in all things energy.
Having since transitioned back to the software world, I’ve glimpsed a parallel that SaaS and other digital-native businesses (DNBs) may overlook: The public cloud is just another utility.
The same way companies rely on utilities for essentials like electricity and natural gas, SaaS companies and DNBs rely on cloud services to enable their digital presence.
If you are like me, then you have no idea how much turning the lights on or taking a hot shower impacts your energy bill. Similarly, software developers at SaaS companies and DNBs typically have no idea what the impact is on their cloud bill when they are making architectural decisions or writing their code.
Over the years, reliance has turned into gluttony: In 2020, executives already suspected that about a third of their cloud spend (more than $313 billion) was wasted.
The higher a company’s cloud spend, the more it cuts into their profitability — and, increasingly, their overall valuation.
3 Lessons Energy Efficiency Can Teach Us About Cloud Cost Management
1. Death by a thousand cuts
On any given day, forgetting to turn out the lights when you leave the home office isn’t going to result in a high energy bill. But if you get in the habit of not turning out your lights — then letting hot water run, then running heat or air conditioning when you’re away — the cumulative impact can be very costly.
In the software world, one equivalent is API calls.
In terms of overall cloud spend, one API call doesn’t cost very much. But a unit of code can result in thousands of calls every day — many of which could be reduced.
Like energy efficiency, the first step in cloud efficiency is taking common-sense measures to reduce unnecessary expenses. Do you need an extra ten minutes in the shower? Do you need to process thousands of API calls, or could it be hundreds?
2. The permanent consequences of Day One decisions
The decisions made when building a home or office have a permanent impact on energy costs. This ranges from simple, flexible choices like the type of lightbulbs you use, to deeper, fixed choices like the direction your building faces.
In Boston, where I live, southern exposure means lower heating and electricity bills. If you know that during the building phase, you can make the decision proactively. But if you only learn it in retrospect, you can’t just rotate your house 90 degrees.
Similarly, software engineers have thousands of possible cloud services at their disposal and infinite ways to write code.
Software engineers are often under pressure to get products to market quickly and are making decisions blindly — unaware of the financial implications. The more SaaS companies and DNBs can connect engineering decisions to tangible economic outcomes, the more they can limit the long-term damage of early stage build decisions.
3. A mix of common sense and modern AI
Cultivating good habits like managing the burning of fossil fuels for electricity, heat, and transportation to reduce your carbon footprint is important.
But as technology throttles forward, AI-based options have emerged that help companies go even farther. I am personally reminded of this every time my Nest emails me when it detects a potential anomaly with my heating systems.
The same is true in the cloud spend world. Step one is identifying glaring anomalies; step two is using leading-edge tech to generate actionable, contextualized cloud intelligence data.
For example, automated services can shift your compute workload to times of the day where cloud services are in lower demand (and therefore cost less). Electricity utilities incentivize businesses to shift their workloads to a time of day when energy is cheaper. In the public cloud world, “spot instances” accomplish a similar objective.
And, the kicker: Building efficient software is actually better for the environment. Less overall compute power consumes less overall energy, reducing your carbon footprint in addition to your AWS bill. Assuming the SEC’s rule passes, cloud efficiency could have cascading effects on your bottom line.
Cloud spend is a top-three expense for many SaaS companies and DNBs. With margins having more impact on company valuations than they have in years, SaaS companies and DNBs should make cloud efficiency a top priority.
The Cloud Cost Playbook
The step-by-step guide to cost maturity
