Is pricing the cloud the right model?

In the beginning there was the word, and the word was `cost’. More to the point the words, when it came to initially promoting the idea of cloud-delivered services, were Capital Expenditure and Operational Expenditure.

Given that this was all happening at the same time as the global banking fraternity was imploding and austerity measures were the order of the day, it seemed likely that the chance to slash Capex budgets and reduce Opex budgets would prove just too tempting many businesses with an enduring relationship to IT resources and capabilities.

As it happened, however, selling the idea of cloud services on the basis of cost reduction failed to take off, and cloud services stayed on the sidelines for a while. This, in no small measure, was because the cost was irrelevant while the users remained largely unsure about how to exploit the potential of the cloud. And that potential is still as huge as ever, and still largely untapped by most users.

So the issue with the cloud becomes, therefore, what can be gained from it – what is the return on the investment – rather than what can be saved off the Capex and Opex budgets. One of the problems here, of course, is that the real returns on investment are almost impossible to measure, as there is little like-for-like to compare between the `before’ and `after’ cloud. Or at least, there should not be. Any business that just uses the cloud to provide existing services at what they hope will be a better cost will be doing themselves a disservice, and may well find themselves financially disappointed.

It is from that standpoint that I then wonder about the value of a survey on the subject of `Pricing the Cloud’. Is it, for example, just fuelling the notion that price is the primary arbiter of choice when it comes to selecting cloud services? Yes, it plays a part, but it can also help take users’ minds off the benefits of finding new ways to exploit what cloud services can offer, such as the mashup ideas put forward by Blake Irving, the CEO of Go Daddy, here.

The `Pricing The Cloud’ survey comes from Tariff Consultancy, and looks at cloud computing pricing, trends & demand worldwide.

The report finds that public cloud computing pricing is becoming increasingly competitive, with price reductions averaging 10 percent per annum. Private (dedicated) cloud services are also seeing a decline in pricing as new virtualised services with a high degree of automation are being made available even for the SME enterprise.

Providers such as Microsoft Azure and Google are reducing their core pricing in order to compete with Amazon EC2, the market leader in public cloud computing. It has up to five times the computing power of its competitors and is expected to see revenues of in excess of $5 billion per annum this year 2014.
 

And the established software providers, including Oracle and IBM, are introducing cloud-based services as an alternative to conventional licenced software, with IBM alone reporting that it provides in excess of 100 SaaS services as of the end of 2013.

The number of cloud service providers are growing, with local providers active in each country market with hosting, telecoms, IT services and software backgrounds all offering cloud services. They are frequently using a white label service from AWS, Microsoft or Google, or developing their own cloud platform from virtualisation specialist VMware.

There is increasing use of web-based portals and high levels of service automation and virtualised software, which enables a large number of service options to be included. This allows users a growing level of customisation. As an example, the survey points a SunGard Online and its claimed 200-plus cloud computing options that can be assembled from its own web portal.

It also notes French provider OVH, which is offering OVH vCloud as a Service (based on a VMware platform) which can be ordered via a web portal for a fixed monthly fee starting from $968. This includes vCPU, RAM & dedicated disk space with capacity of up to 10,000 Virtual Machines (VMs) per user available.

The report highlights several key cloud pricing trends, including the dominance of Amazon EC2 public cloud offerings worldwide, with a claimed introduction of 100 product revisions (Q4-13) and 40 price changes introduced since launch in 2006. It also notes the pricing strategy of Microsoft Azure & Google, which is to shadow Amazon EC2 pricing over time for core components.

This, strangely, is a tactic which is likely to both play into Amazon’s hands, and distort the marketplace for those users that continue to think that buying on price is the primary objective.

There are signs that the service providers are waking up to the possibility that providing services is more important than competing on price. For example, the survey notes the introduction of different Computing Instances which are available for specific applications . It also observes that these can then attract specific pricing for content services and high density applications, because they add more value to the user’s business.

It also points to the growing trend towards bundled services, with provider Joyent offering a bundled service with vCPU, RAM, storage & 1GB of outgoing bandwidth services in one price. Some providers are already starting to realise that there is even more chargeable value to be had by adding in common applications services and tools, such as traffic management capabilities.

These can help ensure that business critical services such as online trading and ecommerce sites are not swamped, either by popularity  - both  Kate Bush’s website and those of other ticket selling operations crashed under the load following the release of tickets for her August run of London concerts – or by malicious attack.

TCL forecasts that the average per-hour public cloud computing pricing is set to decline from $0.375 per hour (as of now) to an average of USD $0.231 per hour (as of the end of 2019). The company also projects that `global public cloud revenue is to increase by an average of 34 percent per annum for the five year period from the end of 2014’. It expects to see it rise from $28.2 billion up to $76.3 billion by the end of 2019. That equates to some 330.3 billion hours of compute time.


The report provides coverage of global public cloud pricing with a comparison of virtual CPU, storage and bandwidth pricing for the key providers. It provides examples of pricing trends and a forecast for cloud computing pricing and revenues over the 5 year period from 2014 to 2019. The report costs £1,495 for a single user licence.

Further information on the report can be found here.