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 newsletter!

Or

Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Tags 451 Research

Featured

Slideshows

Meet the Reseller News 30 Under 30 Tech Awards 2020 winners

Meet the Reseller News 30 Under 30 Tech Awards 2020 winners

This year’s Reseller News 30 Under 30 Tech Awards were held as an integral part of the first entirely virtual Emerging Leaders​ forum, an annual event dedicated to identifying, educating and showcasing the New Zealand technology market’s rising stars. The 30 Under 30 Tech Awards 2020 recognised the outstanding achievements and business excellence of 30 talented individuals​, across both young leaders and those just starting out. In this slideshow, Reseller News honours this year's winners and captures their thoughts about how their ideas of leadership have changed over time.​

Meet the Reseller News 30 Under 30 Tech Awards 2020 winners
Reseller News Exchange Auckland: Beyond the myths — how partners can master cloud security

Reseller News Exchange Auckland: Beyond the myths — how partners can master cloud security

This exclusive Reseller News Exchange event in Auckland explored the challenges facing the partner community on the cloud security frontier, as well as market trends, customer priorities and how the channel can capitalise on the opportunities available. In association with Arrow, Bitdefender, Exclusive Networks, Fortinet and Palo Alto Networks. Photos by Gino Demeer.

Reseller News Exchange Auckland: Beyond the myths — how partners can master cloud security
Reseller News welcomes industry figures at 2020 Hall of Fame lunch

Reseller News welcomes industry figures at 2020 Hall of Fame lunch

Reseller News welcomed 2019 inductees - Leanne Buer, Ross Jenkins and Terry Dunn - to the fourth running of the Reseller News Hall of Fame lunch, held at the French Cafe in Auckland. The inductees discussed the changing face of the IT channel ecosystem in New Zealand and what it means to be a Reseller News Hall of Fame inductee. Photos by Gino Demeer.

Reseller News welcomes industry figures at 2020 Hall of Fame lunch
Show Comments