451 Research: Cloud Race To The Bottom Is ‘Red Herring’

Analyst house 451 Research has called the cloud provider ‘race to the bottom’ in pricing a red herring, with the supply of high value services the only way to long-term growth for cloud vendors.

451’s latest Cloud Price Index said that the cloud services sector is a long way from becoming a commodity market, with price differences between providers barely impacting market share. In truth, customers are now looking for decent value-added services from their providers.

‘Doesn’t matter’

“In short, price doesn’t matter,” said 451 Research today.

“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 research director Owen Rogers.

“In fact, the real drama is the race to the top rather than race to the bottom.”

Instead, data from the Cloud Pricing Index report highlights lower cost service providers not winning market share solely because of their pricing strategy.

The change is strategy can clearly be seen in 2016, with many of the biggest public cloud providers such as Microsoft Azure and Google Cloud showing off their prowess with new products and infrastructure expansion, rather than reiterating price benefits.

451 analysts believe that as the price for cloud compute continues to fall toward zero, the hyperscale vendors will add higher-value cloud services as quickly as they can – aka ‘moving up the stack’ – recognising that the margins currently enjoyed on bulk sales of compute resources are not sustainable.

Rogers pointed to this year’s trend of pursuing two paths to growth and survival for cloud providers. The first is expanding their services, and the second – moving into less mature markets. Examples of the latter can be seen with the expansion of IBM, Microsoft, and Amazon into countries such as India.

“The US is the region where a cheaper price is most likely to drive market share, yet even here, the CCS is only 18 percent,” said 451.

“By virtue of its size and economies of scale, the US is the cheapest market for cloud. 451 Research analysts believe this low CCS score demonstrates that there are still opportunities in the US, although service providers need to find their ‘X Factor’ and should question whether they need their own infrastructure or should partner with a cheaper competitor.”

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