Service Provider Cloud

Storage Now Driving New Cloud Pricing Fight: Report

Mounting pressure from the big public cloud providers is putting pressure on the object storage market, pushing prices down and starting a new era in the cloud pricing wars. This also means that enterprises buying cloud storage will be able to benefit from these price cuts.

What started in the third quarter of 2016, with IBM's SoftLayer cutting the price of its storage, has spread to the other three major cloud providers -- Amazon Web Services, Microsoft Azure and Google Cloud Platform -- which has pushed object storage prices down 14%, according to 451 Research's latest Cloud Price Index report, which the firm released April 20. (See AWS Tops in Public Cloud, but Azure Is Catching Up.)

For a number of years, the pricing pressure affected virtual machines (VMs), but that has changed as the market has matured, more companies are working on cloud-native development and vendors look for a competitive edge as customers move away from on-premises software.

"My impression is they've been able to streamline cost-efficiency over the past few years through economies of scale, etc...," Owen Rogers, research director for the Digital Economics Unit at 451 Research, wrote in an email to Enterprise Cloud News. "So their margins have probably been trickling up over the past couple of years for object storage. So the price cut is, to some degree, passing these savings on. But obviously, the providers would have rather kept that cost-saving as margin."

The report also finds that object storage is one of several cloud components that will see price drops in the months ahead. The next likely service to feel this pressure is relational databases.

Over the past 12 months, the price of object storage dropped about 14%, while VMs, which had been dropping rapidly, steadied a bit --- dropping about 5% during that same time. However, despite the price pressure, the 451 report found that margins for VMs remain at a healthy 30%, meaning that the larger providers have still benefitted despite the price cuts.

The good news is that the enterprises buying these services, especially storage, are benefitting from the price cuts as well.

"The good thing about object storage is that it is very much consumed on-demand, so there's no need to wait; end-users automatically get savings straight away," Rogers wrote. "Contrast this with virtual machines, which are sometimes bought in advance via reservations -- the problem here is that sometimes end-users buy these in advance, then on-demand pricing is cut, and the investment in the reservation makes less of saving than they originally thought."

Does this mean the cloud market is headed toward the commodity space?

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Not exactly, according to the report, which finds that the market is not price sensitive right now. This means that enterprise buyers of cloud infrastructure and services are aware of the prices they pay and are looking to make the best deals possible.

"I suppose we can say that some cloud services are becoming increasingly commoditized (such as virtual machines), but the overall cloud market is not," Rogers wrote. "Cloud providers are distinct and differentiated through their service wraps, geographies, portfolios, etc... but some services they sell could be considered commoditizing."

The 451 Cloud Price Index follows services and economic data in the cloud market based on information from 30 private and public cloud services from 60 service providers.

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— Scott Ferguson, Editor, Enterprise Cloud News. Follow him on Twitter @sferguson_LR.

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PaulChau 8/14/2018 | 2:55:57 AM
hi This will really be an interesting fight. It's not that complicated a system but there will be some determining points that will decide who will provide a better service to the public. I really don't think that it's difficult to expand cloud-based services but it will be clear who is better at doing it before time...
kq4ym 4/28/2017 | 4:46:59 PM
Re: Not saturated The drop in object storage is certainly going to fuel some demand and maybe a bit of shopping from firms looking to maybe switch or start new cloud projects. It's clear that "pushing prices down and starting a new era in the cloud pricing wars," will be beneficial in the long run for not only the providers of service but the users themselves.
[email protected] 4/28/2017 | 11:10:42 AM
Re: Not saturated It's true that storage comes in many flavors even in the consumer markets I was sold backup storage for my computer I was never told it could take days to get my files...literally days from a leading security provider. Buyer beware when you buy storage performance, speed and access are key variables in assessing costs.
mhhfive 4/26/2017 | 3:13:22 PM
Re: Not saturated Amazon will also roll a truck filled with SSDs to directly transfer large amounts of data at a faster rate... since a station wagon filled with hard drives is still better than the internet. 
danielcawrey 4/25/2017 | 5:19:08 PM
Re: Not saturated I like how the big players offer different tiers of accessibility. For example, Amazon has a storage service that is called glacial storage. It takes a few hours to retrieve data, but the cost per unit is quite reasonable. 
JohnMason 4/25/2017 | 2:10:54 PM
Not saturated Because the market for cloud services is not saturated, there is still room for growth even at lower prices.
[email protected] 4/25/2017 | 12:27:57 PM
Re: Market Variables Thanks Scott, cloud is experiencing what every technology and business solutions experiences and explosion in the capability and penetration. That always comes with commoditization, remember when people paid for minutes and texts on their phones? Getting value added bundling for the survivor providers will be the long term play to market leadership.
Scott_Ferguson 4/25/2017 | 12:18:02 PM
Re: Market Variables @Maryam: That's an excellent point about the value add part and not something that came up in the report. I think that's where third parties can have some sway as the prices go down and this heads toward commodity.
[email protected] 4/25/2017 | 12:10:57 PM
Market Variables It's inevitable that storage will become a commodity in the B2B and B2C space its was sold a premium for quite some time and is still being sold at premium prices to consumers. Vendors will need to be creative about their pricing bundles and feature if they want the pricing to not become a bidding war. Adding value to the storage will be key.
Scott_Ferguson 4/24/2017 | 9:21:06 AM
Re: Good news/bad news @Joe: You made a decent point there and if you look at some of the comments from the 451 analyst, you'll see he talks about commodinization of the market in certain areas, but that the vast majority of cloud, since it's still very new, is not in danage of that and won't be for some time. 
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