Price wars in the age of the cloud have largely been limited to virtual machines and a few of the more esoteric services that are not widely used. But a new report from 451 Research suggests that a price war involving cloud storage is now in the offing.
The market research firm is reporting that pricing for object-based storage has dropped more than 14 percent over the past 12 months. In comparison, 451 Research reports that virtual machine pricing has dropped only 5 percent over the same period. 451 Research is predicting that declines in cloud storage pricing will not only accelerate over the next 18 months, they will also be extended to other services such as databases.
According to the report, the first round of object storage price cuts was initiated by IBM. Amazon Web Services (AWS), Microsoft, and Google all followed suit. Storage in the age of the cloud is about more than merely storing bits cost effectively, though. Every cloud service provider is building out artificial intelligence (AI) services based on advanced analytics that leverage machine and deep learning algorithms. Those services are only effective when they have access to massive amounts of data on which to base predictions.
The 451 Research report suggests that cloud service providers (CSPs) still have plenty of headroom when it comes to cutting prices. Margins for virtual machines — where price cuts have historically been the most aggressive — are in the range of 30 percent or higher.
But as Microsoft, Google, and IBM become more competitive, the public cloud computing market is increasingly becoming less dominated by AWS. Thanks to an extensive partner ecosystem Microsoft has been gaining ground on AWS, while Google and IBM have been enjoying more positive reviews among enterprise-class organizations.
How MSPs should adapt
Given that increased level of competition in core cloud services, managed service providers would be well advised to expand their cloud service portfolios. The law of diminishing returns makes it clear that every product or service will decline in value. At the same time, CSPs are investing heavily in IT automation frameworks with an eye toward driving the cost of delivering virtual machines, cloud storage, and even network services as close to zero as possible. As those efficiencies are gained, there will be room for even more aggressive price cuts.
The good news is that IDC is now forecasting there will be a 10-fold increase in the amount of data that needs to be stored by 2025. Obviously, a huge percentage of that data will wind up being stored in a public cloud service. The opportunity for MSPs is to create services that enhance the value of all that data by, for example, enabling organizations to derive more value by applying analytics.
Competition across the cloud will become much fiercer in the months and years ahead. The decisions that MSPs make today concerning what higher margin services to develop tomorrow will determine to what degree they will be able to survive an anticipated wave of pricing cutting that is sure to pull the cost of everything associated with public cloud computing down with it.