M$ Price Hike: Is the Race to the Bottom Over?

A couple of weeks ago Microsoft raised the prices of Azure, Office 365, CRM Online and other enterprise cloud services across Australia, Canada and Europe. In the Azure AU Region prices were increased a hefty 26% and there has been a significant outcry from customers and partners alike. The reality is that for partners who resell Azure their margins just got lower and most will have trouble passing on the full 26% increase to their customers.

Effective August 1, 2015, local prices for Azure and Azure Marketplace in Australian dollars will increase by 26% percent to more closely align with prices in most markets.

The reason given by Microsoft was to realign prices with the US Region and adjust for the stronger US Dollar, however in a market where consumers are used to prices going down this was certainly a shock to the system and very much unexpected. Notwithstanding the fact this is Microsoft we are talking about (a company who have a long history of screwing their partners) …the message I get out of this price rise is that we might have reached a potential turning point in the race to the bottom that has been a featured tactic of the big Public Cloud Providers since Azure and Google came into the market to combat Amazon’s dominance.

Since 2011 there have been punches and counter punches between all players trying to drive down prices to entice consumers of Cloud Services. In 2013 I wrote about the Online Storage Wars and what cheaper per GB pricing meant for the average Service Provider…At the time it was companies like Dropbox and Mega contributing to the race to sub cent storage and in the two years that have followed AWS, Azure and others have continued to slash the cost of compute and storage.

“We will continue to drive AWS prices down, even without any competitive pressure to do so,” asserted Amazon CTO Werner Vogels

With the big players driving down prices, smaller providers needed to follow to remain competitive…but in remaining competitive many providers risked becoming unviable. Without scale it’s impossible to drive a return on investment…and without that some smaller providers have forced to close down or sell off. In truth the Microsoft move to raise prices should give fledgling Service Providers hope…There is value in the services offered and customers should be prepared to pay for quality services. Customers need to understand value and understand what it means to pay for quality.

Following from my post a couple of weeks ago around The Reality of Cloud Outages…a continued race to the bottom in my opinion will only mean more risk being put into Service Provider Cloud Design and Architecture…something has to give when it comes to cost vs quality and those providers that don’t have the scale of the big players don’t have a hope in hell in being able to provide long term viable services.

So while I may be jumping the gun a little in reacting to the recent price hikes meaning an end to the race to the bottom…it should defiantly give smaller providers confidence to keep pricing relatively stable and focus on continuing to deliver value by way of providing strong products and services.

Hopefully from this point forward prices are allowed to be governed by technical market forces driven by improved compute and storage densities rather than by the monopoly like forces we had become accustom to.

References:

http://www.crn.com/news/cloud/240153051/are-cloud-prices-becoming-a-race-to-the-bottom.htm

http://www.aidanfinn.com/2015/06/pricing-for-azure-in-the-euro-zone-to-increase-by-13/

http://www.zdnet.com/article/azure-office-365-and-more-microsoft-cloud-price-increases-on-deck-for-august-1/

http://www.theregister.co.uk/2015/04/22/google_vs_aws_race_to_the_bottom_detours_into_super_ssd_spring_sale/