The Cost of the Cloud: The Race to Zero

CEOs and senior executives have always been searching for the most efficient method for managing their IT budgets. In today’s fast-moving digital economy, it’s essential for every organisation to ensure they’re receiving the best possible return from their technology investments, as their business models have become increasingly reliant on this technology for their long term success. In this environment, cloud computing is currently driving the greatest shift in IT spending since the proliferation of desktop computers in the 1980s. Gartner predicted that this shift in spending from traditional IT to cloud services will total an estimated $1 trillion by the year 2020.[1]

The benefits of shifting traditional IT into the cloud have been widely touted, as it’s a move that markedly improves an organisation’s agility and productivity, allowing them to stay relevant in increasingly competitive market places. Unfortunately, there remains a significant reluctance on the part of many executives to commit more of their resources towards shifting their IT operations to the cloud.

Too Good to be True?

As business people, we’re taught about the perils of over reliance on suppliers and in some cases, we learn the potential downside through experience. Where scale has allowed us to eliminate our need for suppliers through capital investments, it would seem against conventional wisdom to ignore these opportunities. However, the value once derived from IT capital previously was the ability to decrease operating expenses incurred through external IT service providers but this value is quickly being eroded as cloud computing becomes dramatically inexpensive. The average price of cloud computing has in fact, reduced by more than two thirds since 2014.[2]

It appears that no matter how low cloud computing costs go, there’s an innate distrust and ongoing reluctance among executives to commit to long term partnerships with cloud service providers. Many are suspicious that the moment they sign up for a long term subscription or contract, the prices will begin to skyrocket and they’ll be trapped in the cloud with costs beyond their control. This just simply isn’t the case as we’ll explain.

The Battle in the Cloud

The easiest way to understand how drastically the landscape of IT spending has changed is to simply look at the price of storage and computer memory. Once thought of as an obscene level of data, a gigabyte of computer storage would have cost around $9,000 in 1993 but the same amount of storage would cost you around four cents today.[3] In terms of cloud storage, Google now offers every individual user upwards of 5GB of online storage for absolutely no charge.

That amount of online storage being available for free would have been unthinkable a decade ago. Rapid advances in technology have played a large role in the rise of cloud but they are only part of the story. The real reason that cloud computing has become so inexpensive is because of the heated competition between some of the world’s largest cloud providers.

In what’s been coined “the race to zero”, tech companies such as Google, Microsoft, IBM and Amazon Web Services have all dramatically slashed their prices over the past several years to the point that many cloud services such as Google Drive are now completely free to use. This competitive dynamic was driven initially by Amazon who seized the opportunity to leverage their retail technology for providing cloud computing services to small businesses.

Since 2008, Amazon have cut their prices for cloud computing more than 42 times in an effort to increase their share of the market.[4] Microsoft countered this move by announcing they would match or beat Amazon’s prices with their Azure suite of cloud computing services, and Google has also significantly reduced their prices in recent years.[5]

The Customer is King

With the competition among cloud service providers set to continue and subscription prices continuing to plummet, the pressure is on providers to create value in order to bring new customers on board. As storage and processing are now the bare minimum in services provided, cloud companies have entered an exciting new phase where nearly every IT and many business functions can now be purchased “as a service” - Infrastructure-as-a-service (IaaS), Software as a Service (SaaS) and Platform as a Service (PaaS).

This is a natural process whereby cloud providers will soon be unable to differentiate their offering on price alone and are now being forced to innovate at a rapid pace. Microsoft for instance, have leveraged the most traditional component of their brand by offering a growing suite of software, operating systems and productivity tools through the cloud with storage and computing capacity offered as an add-on to these services.

The real challenge for a business considering the cost of migration to the cloud is finding a visionary systems integrator that can provide maximum return and drive further cost benefits when bringing together these ‘as a service’ components. Getting the right advice for cloud migration and delivering integration that derives the greatest possible value is key when considering the cost of this IT investment. This can only happen by working with organisations that understand digital transformation, and just as importantly understand your digital personality to transform your organisation at the right pace.

What are your ideas and experiences in regards to moving to the cloud ? I'd love to hear your thoughts.
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1. http://www.gartner.com/newsroom/id/3384720
2. http://www.prnewswire.com/news-releases/pricing-the-cloud-2016-edition--2016-to-2020-300226678.html
3. http://archive.wired.com/magazine/wired-20th-anniversary/
4. http://www.businessinsider.com.au/a-peek-at-amazons-culture-of-frugality-2014-4
5. https://azure.microsoft.com/en-us/blog/storage-price-match/

This blog was originally published on LinkedIn here.