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Cloud: A tricky space to play in

Hafizah Osman | July 30, 2015
Industry experts have underscored how the pricing strategy of Cloud vendors has a huge impact as it affects both end-customers and smaller vendors

Dealing within the Cloud space is like walking on a bed of egg shells -- businesses have got to make measured and calculated moves if they wish to succeed. Just when you thought is was safe to assume everything is a bed of roses in the Cloud, industry experts have underscored how the pricing strategy of Cloud vendors has a huge impact in this space as it affects both end-customers and smaller vendors.

Their comments follow news that Microsoft will soon make some price adjustments for Azure in Australia. According to an official email it sent to all existing Azure customers, the local pricing for Azure and Azure Marketplace will increase by 26 percent as of August 1.

The annnouncement had an immediate impact with some partners taking to Microsoft's developer network page to express their anger. And while the Cloud seems the be-all and end-all of solutions in 2015, there is continued confusion within the sector. What does it all spell out? Our experts have differing views.

Cloud Plus founder and CEO, Jules Rumsey, said there are two distinct types of Cloud player in the market. The first is companies such as Amazon and Microsoft that sell Cloud as a hosting solution with a few value-added offerings on top. The other is businesses like Cloud Plus that have more integrated offerings.

"Once you start to put network, security, hosting, and a whole suite of other products together, pricing does become more elastic and it becomes part of a complete solution. If you're selling a point product that is directly comparable to another vendor's point product with nothing further to drive the value proposition, outside of service and quality, you're going to struggle with pricing," he said.

On the other hand, Channel Dynamics director, Cam Wayland, said the move doesn't make a lot of difference as the bigger players (such as Amazon, Microsoft, and IBM) are fluctuating prices in a bid to fight for market share between themselves.

"The channel has now started to realise that it can't build and offer Infrastructure-as-a-Service [IaaS] competitively against those big players. If you're a channel partner, don't try and compete against them because you'll never win."

"The big guys are slugging it out and they will continue to slug it out; where that ends, no one knows. But it's following the normal maturity cycle in the industry where when the industry starts to get competitive, Cloud prices are altered and you'll end up with only a small number of players dominating a large amount of the market," he said.

According to rhipe market research vice-president, Stephen Parker, vendors are coming away from the price race to the bottom by charging for value. He said if a partner's whole profitability is based on the underlying cost of the vendor, it means they don't have a viable business model. "If all you're doing is reselling a product, you don't have a viable business model anyway. If you're totally destroyed by a 10 or 20 percent increase in prices, then the offer to your client is simply the sale of a product rather than the sale of a service.

 

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