The era of ever-cheaper cloud services is over

Microsoft and IBM are raising prices, which enterprises can easily absorb

The era of ever-cheaper cloud services is over
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After years and years of competitive price cuts, Microsoft is hiking prices on its cloud computing service. IBM is also adjusting prices upward.

Last week, Aiden Finn, a Dublin-based Microsoft-focused consultant, posted excerpts from a company email alerting customers that Azure prices in the euro zone will rise 13 percent as of Aug. 1.

Over the last several years, cloud prices have dropped significantly as cloud providers sought to grab more market share. It became so routine that I stopped reporting on such price drops: Another price cut? Who cares?

I suspect we'll see some more price increases in 2015 and 2016, for the simple fact that cloud providers are under pressure to make actual money, not simply gain market share. The margins are likely razor thin, so price hikes are the only way to increase cash flow now that the demand is on a path of steady growth. As cloud providers lock in customers, they are bound to raise prices, much like large enterprise software providers have done for enterprise licenses. 

Most enterprises are not sensitive about cloud service prices. They are getting smarter about how to get value from the cloud, and they have better cost models, so they understand that even a pricier cloud is still good deal.

Indeed, with the related costs of talent, training, and network upgrades, the expense of cloud subscriptions are only a drop in the bucket. I create these cost models often, and I rarely see the cost of cloud services make much of a difference, all things considered -- at least not yet. 

I expect the hikes will continue, but I also expect the prices won't rise so fast that they drive customers to competitors. 

The industry's 800-pound gorilla, Amazon Web Services, has not made any price-hike announcements. When it does, you know the trend to higher cloud pricing is the new normal.

Copyright © 2015 IDG Communications, Inc.