Cloud Costs Drop Faster for Hagglers: 451 Research

CIOs and IT managers may want to brush up on the art of bargaining.

451 Research’s Cloud Price Index, published today, reveals that on-demand cloud prices have dipped a mere 2.25 percent since October 2014. The average multi-service, on-demand cloud application currently costs $1.68 per hour compared to $1.72 per hour in October.

Cloud Storage and Backup Benefits

Protecting your company’s data is critical. Cloud storage with automated backup is scalable, flexible and provides peace of mind. Cobalt Iron’s enterprise-grade backup and recovery solution is known for its hands-free automation and reliability, at a lower cost. Cloud backup that just works.

SCHEDULE FREE CONSULT/DEMO

Organizations that sit at the bargaining table can score a better deal, however.

According to the firm, businesses that negotiate and commit to cloud agreements can slash costs by 12 percent. In the company’s best-case analysis of a pre-arranged deal, which allows cloud providers to plan capacity and budget their investments, pegs the price at 95 cents per hour, a savings of 44 percent versus on-demand.

The company compiles the report using quotes from companies representing 70 percent of the cloud market. It’s a roster that includes Amazon Web Services (AWS), CenturyLink, Colt, Google, Microsoft, Rackspace, Swisscom, Verizon and Windstream.

451 Research also found that the price of cloud compute has dropped 4 percent in the intervening months and bandwidth now cost 3 percent less. Despite this, cloud providers are raking in revenue and profits due to stable pricing on other services, including platform-as-a-service, management and storage.

And while headline-grabbing price reductions have become commonplace, the economics continue to work squarely in the favor of big cloud services providers, according to 451 Research senior analyst, Dr. Owen Rogers.

“If you believe the hype, public cloud providers are in a cutthroat price war and ‘race to the bottom,’ where margins are being slashed, and profitability is at risk,” said Rogers, in a statement. “The reality is there is no cloud price war.”

As businesses accelerate their cloud migration plans — or skip on-premises deployments altogether — cloud companies are relying on high-margin services to fill their coffers.

“There are battles being fought over certain cloud services, particularly compute, where providers are seeking publicity and market share in return for price cuts. But cloud providers are more than just compute – considering 50% of our typical Web application’s costs relate to cloud databases, it’s easy to see how sales of more value-adding services can offset declining margins on basic services,” observed Rogers.

In short, cloud providers are hip to loss leader pricing strategies. “Cloud has no bottom price. Even if infrastructure is eventually given away for free, as long as the provider sells other services, which offset this loss, then it can still be a profitable business,” stated Rogers.

Pedro Hernandez is a contributing editor at Datamation. Follow him on Twitter @ecoINSITE.

RELATED NEWS AND ANALYSIS

• Huawei’s AI Update: Things Are Moving Faster Than We Think

  FEATURE |  By Rob Enderle,
  December 04, 2020

• Keeping Machine Learning Algorithms Honest in the ‘Ethics-First’ Era

  ARTIFICIAL INTELLIGENCE |  By Guest Author,
  November 18, 2020

• Key Trends in Chatbots and RPA

  FEATURE |  By Guest Author,
  November 10, 2020

• Top 10 AIOps Companies

  FEATURE |  By Samuel Greengard,
  November 05, 2020

• What is Text Analysis?

  ARTIFICIAL INTELLIGENCE |  By Guest Author,
  November 02, 2020

• How Intel’s Work With Autonomous Cars Could Redefine General Purpose AI

  ARTIFICIAL INTELLIGENCE |  By Rob Enderle,
  October 29, 2020

• Dell Technologies World: Weaving Together Human And Machine Interaction For AI And Robotics

  ARTIFICIAL INTELLIGENCE |  By Rob Enderle,
  October 23, 2020

• The Super Moderator, or How IBM Project Debater Could Save Social Media

  FEATURE |  By Rob Enderle,
  October 16, 2020

• Top 10 Chatbot Platforms

  FEATURE |  By Cynthia Harvey,
  October 07, 2020

• Finding a Career Path in AI

  ARTIFICIAL INTELLIGENCE |  By Guest Author,
  October 05, 2020

• CIOs Discuss the Promise of AI and Data Science

  FEATURE |  By Guest Author,
  September 25, 2020

• Microsoft Is Building An AI Product That Could Predict The Future

  FEATURE |  By Rob Enderle,
  September 25, 2020

• Top 10 Machine Learning Companies 2020

  FEATURE |  By Cynthia Harvey,
  September 22, 2020

• NVIDIA and ARM: Massively Changing The AI Landscape

  ARTIFICIAL INTELLIGENCE |  By Rob Enderle,
  September 18, 2020

• Continuous Intelligence: Expert Discussion [Video and Podcast]

  ARTIFICIAL INTELLIGENCE |  By James Maguire,
  September 14, 2020

• Artificial Intelligence: Governance and Ethics [Video]

  ARTIFICIAL INTELLIGENCE |  By James Maguire,
  September 13, 2020

• IBM Watson At The US Open: Showcasing The Power Of A Mature Enterprise-Class AI

  FEATURE |  By Rob Enderle,
  September 11, 2020

• Artificial Intelligence: Perception vs. Reality

  FEATURE |  By James Maguire,
  September 09, 2020

• Anticipating The Coming Wave Of AI Enhanced PCs

  FEATURE |  By Rob Enderle,
  September 05, 2020

• The Critical Nature Of IBM’s NLP (Natural Language Processing) Effort

  ARTIFICIAL INTELLIGENCE |  By Rob Enderle,
  August 14, 2020