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Cratering Cloud Prices a ‘Red Herring’: Report

CIOs shouldn’t put too much stock into the cloud pricing wars or the idea that the cloud is quickly being commoditized, suggests new data from 451 Research’s latest Cloud Price Index report. The cost of deploying virtual machines in the cloud has dropped 12 percent over the past 18 months on average, said the technology […]

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Pedro Hernandez

May 27, 2016

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CIOs shouldn’t put too much stock into the cloud pricing wars or the idea that the cloud is quickly being commoditized, suggests new data from 451 Research’s latest Cloud Price Index report.

The cost of deploying virtual machines in the cloud has dropped 12 percent over the past 18 months on average, said the technology analyst firm. On the surface, it’s great news to IT budgeters, but they’ll soon discover that those savings don’t extend to the other services that they may require for their enterprise workloads.

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The race to the bottom in cloud pricing is a “red herring,” according to 451 Research. Prices for NoSQL and even storage, an area where cloud providers have been trying to one-up each other, have remained steady. Bandwidth and services like load balancing are also holding the line.

Cloud providers can’t expect to compete solely on price, the report indicates. Customers are flocking to familiar brands, value-added services, local hosting and support, making it tough for bargain clouds to gain market share.

The U.S. is the cheapest cloud market, the report found. Yet, with a Cloud Commodity Score (CCS) of just 18 percent – where zero percent indicates no impact on market share – there is still plenty of opportunity left for cloud providers to make a solid buck.

Europe pays 3 percent more on cloud services than the U.S. on average and has a CCS score of 12 percent. Lower prices barely have an impact in the Asia-Pacific (APAC) region. APAC has a CCS score of 4 percent and pays 19 percent more than the U.S., symptoms of a “fractured market,” said 451 Research.

In short, the industry has a ways to go before the cloud can be considered a commodity, according to said Owen Rogers, research director of 451 Research’s Digital Economics Unit.

“Despite all the noise about cloud becoming a commodity, our research demonstrates a very limited relationship between price and market share. Certainly, being cheap doesn’t guarantee more revenue, and being expensive doesn’t guarantee less,” said Rogers in a statement.

“In fact, the real drama is the race to the top rather than race to the bottom,” continued Rogers. To survive in this climate, cloud providers are expanding services offerings and venturing into less mature markets, 451 Research discovered.

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

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Pedro Hernandez

Pedro Hernandez is a contributor to Datamation, eWEEK, and the IT Business Edge Network, the network for technology professionals. Previously, he served as a managing editor for the Internet.com network of IT-related websites and as the Green IT curator for GigaOM Pro.