Latest / The Cloud Business Podcast with Fexingo: AWS, Azure, GCP, and Enterprise Infrastructure / The Hidden Cost of Cloud Data Egress Fees
Transcript
- Lucas: So there's this number that's been bugging me all week. A company I was talking to runs about a petabyte of analytics in Amazon Web Services, and their biggest single line item on the bill, after compute, is egress. Not storage. Not even support. Just the cost of moving data out of the cloud. Luna: Egress. That's the fee for data leaving the cloud provider's network, right? I feel like everyone just accepts it as a tax, but nobody actually explains why it's so high. Lucas: Exactly. And it's the one line item that feels almost deliberately opaque. On AWS, you pay for data transfer out to the internet at tiered rates. The first ten gigabytes a month are free, then it's nine cents a gigabyte up to ten terabytes, then down to eight and a half cents, and it keeps stepping down. Azure's similar, Google's similar, but the details differ enough that comparing them is a nightmare. Luna: And it's not just internet egress either. You also pay for transfer between regions, or even between availability zones within the same region, right? Lucas: Right. cross az traffic is a few cents per gigabyte, and that adds up fast if you're running a distributed database that ping-pongs data between zones. But the internet egress is the big one. It's the fee that effectively locks you in. Move a hundred terabytes out to another provider, and you're looking at tens of thousands of dollars just in transfer fees, before you even start paying the new provider. Luna: So it's a switching cost. But why does it exist at all? I mean, the marginal cost of moving data across a network is basically zero, right? Lucas: Well, it's not zero. The providers argue that egress fees reflect the cost of building and maintaining the backbone networks, the undersea cables, the peering agreements. And there's some truth to that. But the margins on egress are notoriously high. Analysts have estimated that egress pricing is often a 50 percent or higher margin for the hyperscalers. Luna: So it's a profit center disguised as a cost recovery mechanism. Lucas: Exactly. And it's also a strategic tool. The market is basically a duopoly with AWS and Azure, and Google is a distant third. Egress fees are the moat. They make it expensive to leave, and they make multi-cloud less attractive. Luna: But I've heard that some providers have started offering free egress if you move your data out entirely. Like, Google Cloud did that a few years ago, right? Lucas: They did. In 2021, Google announced that if you want to leave, they'll waive the data transfer fees. It was a direct shot at AWS and Microsoft. But the catch is, you have to actually delete all your data from their cloud. So it's a one-time exit, not a free flow. And they still charge for inter-region transfers, just not the internet egress out. Luna: So it's a marketing move more than a real change in pricing philosophy. Lucas: Yeah, I think it's partly that. But it did put pressure on the others. And now we're seeing regulators poke at this too. The European Data Act, which entered into force last year, includes provisions to address cloud switching costs. It's supposed to make it easier for customers to switch providers and to ensure that exit fees are transparent. Luna: There's a practical angle here too. If you're running a multi-cloud setup, you're basically paying egress fees just to move data between AWS and Azure. That can double your data transfer costs for the same workload. Lucas: Right. Let's put some numbers on this. Say you're moving one terabyte of data per month between AWS and Azure. On AWS, egress to the internet is nine cents a gigabyte after the first ten gigabytes. So that's about ninety dollars a month for one terabyte. On Azure, it's similar, so you're looking at maybe a hundred and eighty dollars total for that one terabyte crossing both ways. Annualized, that's over two thousand dollars just for moving one terabyte. And most enterprises are moving way more than that. Luna: And that's just the direct cost. You also have to account for the engineering time to manage the data pipelines and the monitoring, not to mention the latency if you're doing real-time analytics. Lucas: Exactly. So the real cost is way higher than the line item on the bill. And that's why egress pricing has become such a hot topic in the FinOps community. There are whole blog posts dedicated to designing around egress fees, like using the same provider for everything, or using CDNs to cache data at the edge to reduce the amount of data that goes back to the origin. Luna: But is that really a solution? I mean, if you're a large enterprise, you might have legitimate reasons to use multiple clouds, like redundancy or best of breed services. Lucas: Sure, and that's where things get interesting. Some companies are essentially treating egress fees as a cost of doing business. They accept that multi-cloud is going to be more expensive, but they think the benefits outweigh the costs. But others are starting to push back, especially at the contract level. Large customers can negotiate egress pricing down, or get credits, or get free transfers to certain services like storage. Luna: So it's a negotiation point, but only if you have enough leverage. Lucas: Right. And that's a big if. Smaller companies don't have that kind of leverage. They're stuck with the published rates, which is one reason why the regulatory pressure is important. The EU is looking at egress fees as a potential barrier to competition, and they've mentioned it in the context of the Data Act. Luna: I read something about that. The Data Act requires that after a certain period, you can switch providers and the exit fees have to be phased out. But I think there's a three-year transition period, so it's not immediate. Lucas: Yeah, the full phasing out of switching charges is supposed to happen by 2029 or so. But the interesting thing is that the Data Act applies to all providers, not just European ones. So if you're an American company with European customers, you might have to comply with these rules too. Luna: So egress fees are not just a technical or financial issue, they're becoming a geopolitical one too. Lucas: Yes, and that's something that I think will shape the cloud market over the next few years. If egress fees start to drop across the board, either through regulation or competition, then the whole economics of cloud changes. Suddenly, multi-cloud becomes cheaper, and the providers have to compete on the actual value of their services, not just on the lock-in. Luna: It's like the old days of telephone switching fees. Once those went away, the whole market opened up. Lucas: That's a good analogy. And I think that's what the cloud market needs. More transparency, more competition, and a focus on what the customer actually gets, rather than on the hidden costs of leaving. Luna: If today was actually useful to you, the way these episodes stay ad-free is listener support. You can buy us a coffee at buy me a coffee dot com slash fexingo. It's a small way to keep these conversations going. Lucas: Yeah, every little bit helps us keep the podcast independent and focused on topics like this. We appreciate it. Luna: So, back to the practical side. For a company that's already in the cloud, what's the first step to getting a handle on egress costs? Is it just about looking at the billing report? Lucas: That's a start, but you want to dig deeper. Look at the top sources of egress. Is it coming from a specific service, like a database or a data transfer job? Then you can start to optimize. For example, if you're moving data between regions for backup, you might be able to use a cheaper transfer method or schedule it during off-peak hours. Luna: And there are tools that help with that, right? Like AWS Cost Explorer shows you egress separately, and there are third-party tools that specialize in cloud cost optimization. Lucas: Right, and some of those tools can even alert you when egress spikes. But the key is to understand the unit economics. Know what your egress per gigabyte is per service, and then you can start to make trade-offs. Sometimes it's cheaper to keep data in the same region and just pay for the storage. Luna: So it's a bit like managing a portfolio of data flows. Lucas: Exactly. And for the next few years, I think egress will remain one of the most important line items on any cloud bill. But the tide is turning. The pressure from regulators and the market is real, and I expect we'll see more changes in how providers price data movement. Luna: It's an interesting time to be in infrastructure. Lucas: It is. And if you're building anything that moves data across clouds, it's worth keeping an eye on these changes. The winners will be the ones who can navigate the shifting cost landscape.