Cloud Costs vs. Cloud Value: A Complicated Picture

    The declarations came fast and furious this week following news of price increases for some key cloud services: The race to the bottom is finished, the era of cheap cloud computing is over.

    But a closer look at what is really happening produces a more muddled picture, which unfortunately will make it even more difficult for the enterprise to chart the correct course through the clouds.

    The biggest price reduction in recent weeks came from Microsoft, which has announced hikes of as much as 26 percent for such popular products as Azure, Office 365, CRM Online and the Enterprise Mobility Suite. The new rates are set to take effect August 1 and will affect customers in Europe, Canada and Australia, but only those who sign or renew their contracts – existing annual volume licensing agreements will not be affected until, of course, it’s time for renewal. The chief justification for the increases is the fluctuating currency rates.

    This may or may not prove to be a winning strategy for Microsoft, however, as low cost still holds a large advantage for business users, if not necessarily the enterprises they serve. According to an analysis by Cowen & Co., Amazon customers are on pace to increase their consumption of services at much higher rates than Microsoft, Google and other providers – with the average increase for 2015 at a stunning 43 percent. Even with more expensive, enterprise-facing services like IaaS, Amazon draws the highest per-user average at $124,000, although Microsoft has gained ground recently to about $115,000.

    Smart buyers, of course, know that price and value are not the same. Market analyst Statecast recently published a guide on how well various clouds perform under specific use cases and found that price can sometime play a crucial role in overall value, but it is by no means a slam dunk. At the same time, turning to higher-priced services geared toward the enterprise does not guarantee better value either. What is certain is that the vast majority of enterprises believe they are getting good value out of the cloud, but few can provide the metrics to support that claim. This is largely due to the lack of standardization between services and the wildly divergent needs of the user base. In short, you’ll need to do your homework to determine if your cloud spend is truly worthwhile.

    But regardless of the price wars still underway in basic cloud services, it seems that costs will rise anyway – through taxes. Local municipalities in particular are starting to see the value in cloud computing and are poised to get in on the action. Chicago, for example, is looking to impose a 9 percent surcharge on cloud-based services like Netflix and Spotify, which admittedly are aimed at consumers, but even enterprise-class services would fall under the tax on “nonpossessory computer leases” established by law. As more and more enterprises shed their own data facilities, and thus reduce their business property taxes, other local governments will likely view the cloud as a way to make up the lost revenues.

    Everybody wants the best possible product at the lowest possible price – that’s what deal-making is all about. The cloud is a trickier challenge than most, however, because of its complexity and the constantly shifting nature of data and the value it brings to the enterprise.

    Experience will certainly help to overcome many of the unknowns, but the enterprise will need to think long and hard about what it really wants to gain from the cloud and then perform a clear-eyed assessment as to whether its needs are being met at a reasonable price.

    Arthur Cole writes about infrastructure for IT Business Edge. Cole has been covering the high-tech media and computing industries for more than 20 years, having served as editor of TV Technology, Video Technology News, Internet News and Multimedia Weekly. His contributions have appeared in Communications Today and Enterprise Networking Planet and as web content for numerous high-tech clients like TwinStrata, Carpathia and NetMagic.

    Arthur Cole
    Arthur Cole
    With more than 20 years of experience in technology journalism, Arthur has written on the rise of everything from the first digital video editing platforms to virtualization, advanced cloud architectures and the Internet of Things. He is a regular contributor to IT Business Edge and Enterprise Networking Planet and provides blog posts and other web content to numerous company web sites in the high-tech and data communications industries.

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