Menu
Price war, what price war? Why Cloud has “no bottom price”

Price war, what price war? Why Cloud has “no bottom price”

“If you believe the hype, public Cloud providers are in a cutthroat price war where margins are being slashed, and profitability is at risk.”

Cloud costs are falling slowly across the industry, with recent research unearthing big savings for enterprises willing to commit.

Market research findings from 451 Research claims that while on-demand pricing has fallen only slightly at 2.25 per cent since October 2014, it is nowhere near matching the 12 per cent reduction achieved by those enterprises that negotiate and commit.

Using 451 Research’s cloud pricing model, representing a typical multi-service on-demand application, the cost is now $US1.68 per hour; in October 2014, the cost for the equivalent basket of Cloud services was $US1.72.

“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,” says Dr Owen Rogers, senior analyst, 451 Research's Digital Economics unit.

“The reality is there is no cloud price war. 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 per cent 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.

“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.”

Revealing the extent to which service providers encourage commitment to help them plan capacity and ensure capital for infrastructure investment, 451 Research’s best-case price indicator is only $US0.95 - which shows 44 per cent savings compared to on-demand.

The best-case price measures the same application used the same way as on-demand pricing, but takes into consideration negotiation, subscriptions, reserved instances, term commitments, and sustained-use discounts.

Although the Cloud Price Index shows compute pricing has fallen by 4 per cent and bandwidth has come down 3 per cent, service providers are enjoying increased revenue and profits from other services such as management, PaaS, data and storage pricing, which have remained static over the same period.

Follow Us

Join the New Zealand Reseller News newsletter!

Error: Please check your email address.

Tags CloudData Centre451 Research

Featured

Slideshows

Arrow exclusively introduces Tenable Network Security to A/NZ channel

Arrow exclusively introduces Tenable Network Security to A/NZ channel

Arrow Electronics introduced Tenable Network Security to local resellers in Sydney last week, officially launching the distributor's latest security partnership across Australia and New Zealand. Representing the first direct distribution agreement locally for Tenable specifically, the deal sees Arrow deliver security solutions directly to mid-market and enterprise channel partners on both sides of the Tasman.

Arrow exclusively introduces Tenable Network Security to A/NZ channel
Examining the changing job scene in the Kiwi channel

Examining the changing job scene in the Kiwi channel

Typically, the New Year brings new opportunities for personnel within the Kiwi channel. 2017 started no differently, with a host of appointments, departures and reshuffles across vendor, distributor and reseller businesses. As a result, the job scene across New Zealand has changed - here’s a run down of who is working where in the year ahead…

Examining the changing job scene in the Kiwi channel
​What are the top 10 tech trends for New Zealand in 2017?

​What are the top 10 tech trends for New Zealand in 2017?

Digital Transformation (DX) has been a critical topic for business over the last few years and IDC is now predicting a step change as DX reaches macroeconomic levels. By 2020 a DX economy will emerge and it will become the core of what New Zealand industries focus on. From the board level through to the C-Suite, Kiwi organisations must be prepared to think and act digital when the DX economy emerges in 2017.

​What are the top 10 tech trends for New Zealand in 2017?
Show Comments