451 Research recently released the latest update to their Cloud Price Index. The basic cost of renting from one of the big public cloud providers has fallen just over 2% since the Index began in October 2014. For those who are willing to commit to buying cloud-based resources for months or years at a time, prices fall dramatically: 451 Research reports a 44% saving over the on-demand price, in the best case.
At a time when commentators have cited recently announced increases to Microsoft’s pricing in some regions, 451 Research’s numbers indicate that — overall — the downward trend in cloud pricing continues. A 2% fall in 10 months is hardly a ‘race to the bottom,’ but the direction appears inexorably downward. This is not a surprise.
What is noteworthy is that the 2% figure represents 451 Research’s attempt to model price across an entire portfolio of services, including compute, storage, networking and higher-level services. While the cloud providers themselves might like us to fixate on more dramatic 43% cuts in outbound bandwidth costs or 30% reductions in the price of the smallest virtual machines, real workloads combine a number of moving parts and don’t really see such dramatic reductions in the monthly bill.
More interesting than the gradual fall in the on-demand price (paid by customers who turn up with a credit card and simply rent some cloud-based resources) is the more dramatic 12% reduction in the ‘best-case’ price paid by those who negotiate (aggressively) or commit to longer-term or sustained-use conditions. In some circumstances, these customers see a 44% saving over the on-demand price, which is good for them. It’s also good, of course, for the cloud providers. The economics of their business depend upon high levels of utilization for their hardware. AWS, Google, Microsoft and the rest don’t make money when servers in their multi-billion dollar data centers stand idle.
As 451 Research’s Owen Rogers writes:
Why are service providers cutting best-case pricing? Commitment goes a long way: capital, recurring revenue, financial lock-in and improved cash flow are all good news from the corporate angle. Advanced notification means better capacity planning, more accurate (and cheaper) purchase of hardware and infrastructure, and even the potential for better ‘bin-packing’ of capacity – all of this results in a better-used infrastructure, reducing sunk cost and maximizing cheap unit prices.
So… cloud computing is at its most affordable when you are able and willing to commit to consuming larger volumes of cloudy resources for longer periods of time. That’s fine. But those are also the sort of circumstances in which it might actually make as much (or more) sense to invest in your own infrastructure. It’s crazy to build a data centre when you don’t know what your needs will be next year. But when you have steady and predictable requirements for IT? That’s when you might think about doing it yourself.
Source: Paul Miller of Forbes