Cloud market moving to higher value services rather than commodity pricing

Customers that view cloud computing as a way of cutting costs by reducing IT provisioning to commodity services may be getting the wrong end of the stick, as the market is increasingly turning to value-added services that are a better fit for customer requirements.

The latest Cloud Price Index report from analyst 451 Research claims to show that, rather than being dominated by cut-throat commodity pricing, the cloud market sees customers increasingly looking for value-added services, and providers are moving up the stack to meet this demand and maintain profits.

"Despite all the noise about cloud becoming a commodity, our research demonstrates a very limited relationship between price and market share. Certainly, being cheap doesn't guarantee more revenue, and being expensive doesn't guarantee less," said Dr Owen Rogers, research director of 451 Research's Digital Economics Unit.

The report claims that virtual machine instance prices have dropped 12 per cent on average over the past 18 months, while the price of storage, NoSQL, load balancing and other enterprise-grade cloud services has remained stable during the same period and continues to provide margins for the cloud operators providing them.

The firm said that figures in the report show that the service providers focused on lowest cost have not won greater market share as a result of their pricing strategy, and that enterprise customers instead value additional services, local hosting and support and partnering with a familiar brand.

Local hosting and support is particularly relevant in regions such as Europe, where the market is more fractured and there are greater concerns about data protection across borders and a need for local services to meet performance needs.

This is reflected by the fact that many of the largest cloud service providers, notably AWS and Microsoft Azure, are building new data centres in the UK set to open for business sometime this year. AWS, in particular, is said to be way ahead of rivals in the range of functions and services available to customers from its cloud platform.

"Cloud is a long way from being a commodity," said Rogers, "In fact, the real drama is the race to the top rather than race to the bottom."

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