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​In the cloud price war, cloud storage has become the new battleground

​In the cloud price war, cloud storage has become the new battleground

Despite continuing price cuts, margins are still healthy for cloud providers.

The cloud price battlefield has shifted from virtual machines (VMs) to object storage with other services, particularly databases, set to undergo the same pricing pressures over the next 18 months.

Until recently, the prices of services beyond compute held steady in the face of intense competition, according to 451 Research’s Cloud Price Index.

Across the industry, VMs have been the traditional battleground for price cuts as providers have sought to gain attention and differentiation.

Yet the tide has now turned, with object storage pricing declining in every region, including a drop of 14 per cent over the past 12 months.

For comparison, the cloud mainstay of VMs has dropped a relatively small five per cent over the same period.

Analysts believe market maturity is leading to price cuts moving beyond compute while other factors include increasing cloud-native development and faith in the cloud model, as well as a competitive scrum to capture data migrating out of on-premises infrastructure.

While some in the industry have speculated that cloud providers have been using cheap VMs as 'loss leaders' in their cloud portfolios, 451 Research finds that, even in the worst case, margins for VMs are at least 30 per cent.

At this stage, there is little data suggesting cloud is anywhere near a commodity yet.

Analysts believe the cloud market is not highly price-sensitive at this time, although naturally, end-users want to make sure they are paying a reasonable price.

"The big cloud providers appear to be playing an aggressive game of tit for tat, cutting object storage prices to avoid standing out as expensive,” 451 Research analyst, Jean Atelsek, said.

“This is the first time there has been a big price war outside compute, and it reflects object storage’s move into the mainstream.

"While price cuts are good news for cloud buyers, they are now faced with a new level of complexity when comparing providers."

According to Atelsek, the cloud storage battle started in Q3 2016 when 451 Research’s Digital Economics Unit identified a reduction in IBM SoftLayer’s object storage prices - Google, AWS and then Microsoft followed suit with cuts as well.

Looking forward, the 451 Research Digital Economics Unit predicts that prices for VMs and object storage will continue to come down, with relational databases likely to be the next competitive front.


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