Cloud providers can’t lower prices so instead they increase how many services they offer to give consumers better options than a big name like Amazon.
We’ve said it before, and we’ll say it again – the cloud is not just a buzzword but the must-have solution for the tech industry today. However, as the hype went up, many companies and consumers seemed to jump on board fairly quickly, meaning that it’s mainstream to be in the cloud now. With more and more cloud users, the future will be trying to lower the costs of cloud computing solutions. The problem for many providers is that they must keep a large excess of cloud servers ready and waiting so consumer’s services scale up as promised in a moment’s notice. So how can you drop prices when you have to have solutions ready to go at any time?
Chief technology officer of ScienceLogic (a company that offers cloud management tools) Antonio Piraino explains, “Cloud providers have had a tough time figuring out their capacity projections. These days service providers are judged by their margins. Many have impressive gross margins, but for almost all of them, their net margins are in single digits. Once you account for power, software licensing, real estate and so many other costs, your profit evaporates.” This obviously gives small hosting providers a disadvantage. Amazon, for example, has many streams of revenue, so eating into profits in one area to keep server instances running in the cloud isn’t a big deal to the company. For small hosting companies that are trying to grow, it’s a huge roadblock to being competitive.
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Larger hosting providers trying to combat Amazon do so through offering even more services. Not only do they offer solutions that Amazon doesn’t, but they also can get more and more big enterprises to join the cloud by enticing them with managed services. Ellen Rubin, the vice president of cloud services for Terremark/Verizon, said, “Larger enterprises look for holistic services. They seek out more robust solutions, with more services layered on top.” For example, they wouldn’t sign simply for cloud servers but also for security services, disaster recovery capabilities, and management tools.
Since larger hosting providers offering services seems to be working in the war against Amazon, cloud providers of all sizes are beginning to do the same. The key is back to that excess capacity that all cloud providers have to have on hand. Those servers-on-demand don’t have to be idling while they’re not in use by customers, and therefore don’t have to be a drain on providers’ resources, inflating cloud hosting prices.
Looking towards the future, large cloud providers might be slow to make this shift whereas the dynamic nature of startups might be able to take advantage of this idea faster. For example, the startup OnApp was founded particularly for that reason – to help hosting providers start new services. 2010 was the big year for cloud adoption and as hosting providers popped up to start offering cloud servers, OnApp started simplifying the process for these companies to start offering cloud services.
OnApp came up with a cloud-based content delivery network (CDN) service that uses the on-demand servers that aren’t currently being used by customers to host other services to sell to customers. The solution was simple and small enough that it’s even a solution that small hosting providers can implement as well and compete with the big guns in the industry. Companies all over the world, including SuperHosting.cz in the Czech Republic, have used OnApp and have seen the benefit in the low prices they are able to offer their customers.
To check out more of our coverage on cloud computing, read our blog post about the Hype Cycle report from Gartner about the cloud hype throughout the tech industry.