Despite continuing price cuts, analyst firm finds margins still healthy for cloud providers
In its latest analysis of cloud pricing, 451 Research reveals that the cloud price battlefield has shifted from virtual machines (VMs) to object storage. The analyst firm predicts that other services, particularly databases, will undergo the same pricing pressures over the next 18 months.
Until recently, the prices of services beyond compute held steady in the face of intense competition, according to 451 Research's Cloud Price Index. Virtual machines have been the traditional battleground for price cuts as providers have sought to gain attention and differentiation. The tide has now turned, with object storage pricing declining in every region, including a drop of 14% over the past 12 months. For comparison, the cloud mainstay of VMs has dropped a relatively small 5% over the same period.
Analysts believe market maturity is leading to price cuts moving beyond compute. Other factors include increasing cloud-native development and faith in the cloud model, as well as a competitive scrum to capture data migrating out of on-premises infrastructure.
While some in the industry have speculated that cloud providers have been using cheap VMs as 'loss leaders' in their cloud portfolios, 451 Research finds that, even in the worst case, margins for VMs are at least 30%. There is little data suggesting cloud is anywhere near a commodity yet. Analysts believe the cloud market is not highly price-sensitive at this time, although naturally, end users want to make sure they are paying a reasonable price.
"The big cloud providers appear to be playing an aggressive game of tit for tat, cutting object storage prices to avoid standing out as expensive," said Jean Atelsek, Analyst, Digital Economics Unit at 451 Research. "This is the first time there has been a big price war outside compute...