Think about the cloud from the perspective of the provider (Google, AWS, or Azure). These providers have a huge inventory management problem. When all is said and done, IT outsourcing is a razor thin margin for business and has consistently burned data center businesses for 20 years.

Better server inventory management can make a huge difference. This entails making accurate predictions and being as efficient as possible about inventory management and usage, which is why they offer incentives for purchasing usage up front with CUDs, SUDs, and commits.

If you use virtual machines and a Google engine like Kubernetes or Compute Engine to run your applications, then Committed Use Discounts (CUDs) are worth a look to cut down on costs. Purchasing a Committed Use Discount provides you with huge discounts on VM usage.

A Committed Use Discount is a usage-level commitment for Compute Engine resources at a discounted price. In return for premium discounts, your team is committing to paying for a certain amount of usage for those resources for one year or three years. When you sign up for a CUD, Google has a better forecast of future demand. This helps them manage their inventory more efficiently and it helps you save a lot of money.

Similarly, using a server on a sustained basis, also helps providers with that inventory problem. If you constantly turn servers on and off (ironically one of the benefits of the cloud), it makes the inventory problem worse. As a result, if you turn it on and run it consistently, Google gives you a substantial Sustained Use Discount (SUD).

SUDs can be applied to:

vCPUs and memory for general-purpose custom and predefined machine types. vCPUs and memory for compute-optimized machine types. vCPUs and memory for memory-optimized machine types. vCPUs and memory for sole-tenant nodes. The 10% premium cost for sole-tenant nodes, even if the vCPUs and memory in those nodes are covered by committed use discounts. High-performance Graphic Processing Unit (GPU) devices.

They do this automatically and you don’t have to commit to anything or sign up for anything. Businesses can simply choose Google as their provider and design architecture with this in mind. The design of the architecture determines the cost, so it’s essential to make sure that engineers design with knowledge of how their application behavior will affect the cost to run it.

Keep in mind that commit contracts are completely different from CUDs. Commit contracts are simply a financial instrument – a commitment to spend X over Y years to receive a discount of Z% as a result of making that commitment with Google Cloud.

For businesses with predictable growing spend, and especially for those that are moving workloads from another provider to Google Cloud Platform, you can negotiate attractive discounts, and even get customized discounts for your spend patterns.

It’s helpful to think about the situation from the point of view of the cloud provider. Cloud use is often charged on-demand and month-to-month. That makes financial forecasting a nightmare for some businesses and as a result, is another contributor to the historically low margin nature of data center operations. Another factor here is simply enterprise IT buying expectations set over the last 30 years. Enterprise IT needs to buy in bulk, over many years, and as a result, expects a hefty discount for the guaranteed volume.

The other benefit of a commit contract is that the discounts apply to all of your spend on Google Cloud Platform, so more mature application architectures that go serverless for their applications and databases can also benefit.

Learn more about CUDs, SUDs, and commits that are available now when you switch to Google Cloud Platform.