Cloud Pricing – A Race to the Bottom, or More Than Meets the Eye?

In recent weeks Amazon, Google, and Microsoft have all announced another round of reductions in pricing for various facets of their Cloud offerings. Some pundits and media have highlighted the collective announcements as a “price war”. In a recently published Strategic Perspective available to our premium subscription research clients, we look at the underlying implications of price reductions, and we offer projections of how the Cloud market is beginning to change.

Saugatuck cautions that the recent price reductions are indicators of:

Underlying Realities of Cloud Charges.  Saugatuck estimates that at least 50 percent of workloads on Public Cloud infrastructures (IaaS) are “set it and forget it” and are incurring charges for resources that are not actually consumed. Thus, Cloud providers are reaping essentially windfall profits.

Potential Alternative Revenue Sources. Some Cloud providers garner substantial revenue from other businesses such as advertising, market analysis, etc. These other businesses may include analysis of selected attributes of their Cloud customers. Thus, the infrastructure business is effectively subsidizing the analysis business of the Cloud provider.

Impending Changes in the Cloud Market. Saugatuck projects the relative priorities of criteria that customers use when selecting a Cloud offering will evolve through three phases:

  • Phase 1: Early Infrastructure Adoption.
  • Phase 2: Infrastructure Optimization.
  • Phase 3: Support and Delivery Services.

Saugatuck views the recent price reductions as the latest salvo in a price war. However, ongoing success of any Cloud offering will not be governed by a “race to the bottom” in pricing. Rather, the winners of the contest for market share will be those providers that offer competitive infrastructure pricing and high-value services.

Note: Ongoing Saugatuck subscription clients can access this premium research piece (1355MKT) by clicking here, and inputting your ID and password. 

Charlie Burns

About Charlie Burns

Charlie Burns is a Vice President for Saugatuck Technology, focusing on enterprise software, business/IT services, and IT systems technologies and management. With over 35 years of experience in the Information Technology arena, Charlie is an established expert in IT product and marketing management, and in IT user issues and requirements. After 26 years with IBM, where he held positions in sales, product development and large systems product marketing, Charlie left to become Research Director at Gartner Group in 1993. In 1998 he joined Giga Information Group as Research VP. At both Gartner and Giga, he focused on large systems and the business practices of the major large systems vendors. In 2000, Charlie rejoined Gartner in a relationship management role responsible for two of its largest vendor clients. Charlie received a BS in Computer Engineering from Case Institute of Technology in Cleveland, Ohio. Over the years, he attended a variety of IBM technical and research training programs, becoming an adjunct professor focusing on product management issues.