451 Research Reveals Drop In Cloud Pricing

By Christine Kern, contributing writer

According to the latest 451 Research Cloud Price Index, while on-demand pricing has dipped just 2.25 percent since October 2014, there has been a 12-percent reduction in costs for enterprises that are willing to negotiate and commit.

According to 451 Research’s cloud pricing model, which represents a typical multiservice, on-demand application, the average cost is now $1.68 per hour, down from $1.72 in October 2014.

Most importantly, perhaps, the index results highlight the extent to which services providers actually encourage commitment to help plan capacity and ensure capital for infrastructure investment, helping to debunk the myth of a cloud price war.

“If you believe the hype, public cloud providers are in a cutthroat price war and ‘race to the bottom,’ where margins are being slashed, and profitability is at risk,” said Dr. Owen Rogers, senior analyst at 451 Research's Digital Economics unit. “The reality is there is no cloud price war. There are battles being fought over certain cloud services, particularly compute, where providers are seeking publicity and market share in return for price cuts. But cloud providers are more than just compute — considering 50 percent of our typical Web application’s costs relate to cloud databases, it’s easy to see how sales of more value-adding services can offset declining margins on basic services.”

He also points out that “cloud has no bottom price.” He comments that even if infrastructure is offered free of charge, if the services provider sells other services that offset the loss, they can still profit.

Despite the fact that the Cloud Price Index shows a decrease price, services providers are actually seeing increased revenue and profits from other services such as management, Platform-as-a-Service (PaaS), data and storage pricing, which have remained static over the same period.