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Friday, May 27, 2016

Why Value-Added Cloud Computing Services Matter

According to the latest global Cloud Price Index (CPI) study, the cloud services sector isn't a commodity market, with price barely impacting market share as customers look for value-added services. Moreover, cloud computing skills and proven experience are still in short supply. That's why cloud service buyers seek information, guidance and support from vendors.

The CPI research demonstrates that reduced cloud pricing hasn't significantly changed buyer sentiment. Instead, the supply of higher-value cloud services is key to long-term, sustainable and profitable vendor growth strategies.

451 Research finds that virtual machine pricing has dropped 12 percent on average over the past 18 months, while the price of storage, NoSQL, load balancing, bandwidth and other cloud services have remained stable and continue to provide margins.


Exploring the Cloud Market Dynamics

Analysts believe that as the price for cloud compute continues to fall toward zero, the savvy hyperscale vendors will add higher-value cloud services as quickly as they can, recognizing that the margins currently enjoyed on bulk sales of compute resources are not sustainable.

Furthermore, data from the CPI study shows that the lowest-cost service providers have not won greater market share as a result of their pricing strategy. Instead, customers value their additional services, local hosting and support by partnering with a familiar brand.

"Despite all the noise about cloud becoming a commodity, our research demonstrates a very limited relationship between price and market share. Certainly, being cheap doesn’t guarantee more revenue, and being expensive doesn’t guarantee less. Cloud is a long way from being a commodity," said Dr. Owen Rogers, research director at 451 Research. "In fact, the real drama is the race to the top, rather than a race to the bottom."

451 Research correlated global pricing for the CPI small basket of goods against market share data. The resulting Cloud Commodity Score (CCS) measures this price sensitivity -- the higher the CCS, the bigger the impact price has on market share.

According to the 451 Research assessment, the U.S. market is where a lower price is most likely to drive market share, yet even here, the CCS is only 18 percent. By virtue of its size and economies of scale, the U.S. is currently the cheapest market for cloud services.

Cloud Service Market Development Opportunities

451 Research analysts believe this low CCS score demonstrates that there are still opportunities to add-value in the U.S. market, although most service providers still need to find their key point of differentiation in a crowded me-too vendor marketplace.

In Europe, price has less impact on market share with a CCS of 12 percent, and customers paying on average 3 percent more than the U.S. market. With a CCS of just 4 percent, APAC cloud price changes have minimal impact on market share, reflecting the finding that services in this fractured market cost about 19 percent more than in the U.S. market.

451 Research analysts believe Europe and APAC present more opportunities for cloud service providers than the U.S. because the markets are fractured, with concerns about data protection across borders and a need for local services to meet local performance needs.