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Cloud is not a commodity: 451 Research

Adrian M. Reodique | June 13, 2016
Customers value more additional services than price.

Customers are looking at value-added services - not prices - when they're considering a cloud service provider, according to 451 Research's Cloud Price Index (CPI) report which analyses the global availability of cloud services.

The CPI found the cloud services sector is far from becoming a commodity market as price barely makes an impact on market share. Instead, cloud service providers should focus on supplying higher-value services to sustain long-term and profitable growth.

"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 of 451 Research's Digital Economics Unit.

According to 451 Research, as the price for cloud compute continues to fall toward zero, the hyperscale vendors will add higher-value cloud services as quickly as they can, recognising that the margins currently enjoyed on bulk sales of compute resources are not sustainable.

The CPI report also revealed that the lowest-cost service providers have not won greater market share with their pricing strategy. Customers, instead, value additional services, local hosting and support as well as partnering with a familiar brand.

In addition, the report examined the sensitivity of cloud customers to price by region. 451 Research correlated global pricing for the CPI small basket of goods with market share data from its Market Monitor & Forecast report thus the resulting Cloud Commodity Score (CCS) measures the price sensitivity. The higher the CCS, the bigger the impact price has on market share.

In the Asia Pacific (APAC) region, CCS is only four percent meaning price changes have minimal impact on market share. In the United States and Europe price of cloud services has also less impact on market share with 18 percent and 12 percent CCS, respectively.  

 

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