Cloud cost compeition poses channel challenges

With competition around cloud infrastructure increasing the consequences for those resellers not adding too much additional value could be serious

The threat of decreasing cloud platform costs could make life difficult for those resellers that have not yet established their value proposition if they are left competing on price for hosted services infrastructure.

Last year saw some of the big players in the public cloud space, Google and Amazon Web Services, cut prices in a bid to shore up market share and there is an expectation that capacity charges will continue to be eroded.

If a reseller is selling customers access to computing capacity and some straight forward applications that could be replicated by competitors then the year ahead looks like being an increasingly tough one with margins cut even tighter.

"The cost of core services like mail and cloud storage will continue to be drive down as the mega players fight to secure market share. This will increase pressure on resellers to increase their value-add or go bust," warned Mark Davies, business development director at Cobweb Solutions.

His view was that the pressure should have a positive impact in terms of making it more attractive for customers to move away from on-premise solutions and start talking to resellers about further steps they could take into a hosted environment.

Ian Finlay, COO at Abiquo, said that there had been a lag with some firms moving business critical workloads to the cloud and although those conditions would not change in the short term there could be an impact from lower prices.

"As a result, we can expect to see the emergence of a hidden glut of infrastructure in the cloud which, in turn, will drive down prices. Managed service providers will also need to work harder to differentiate their cloud offerings, but stand to gain from the impersonality of the public cloud," he said.

But he also added his voice to Davies, expecting the changing market conditions would be "the much needed catalyst for the bulk migration of mission critical on premise workloads to the cloud".

For resellers there is not only the challenge of dealing with platform price erosion but also a constant pressure to deliver a robust service to customers that will meet high expectations.

"As businesses of all size continue to migrate infrastructures to virtualised platforms, the demand for service provider accountability will reach its peak. Now that Cloud migration is no longer an 'if’ but a ‘how’, organisations will be looking beyond the cheapest solutions that are popular on the marketplace and calling for a new level of standards from Cloud providers," said Steven Harrison, lead technologist at Exponential-e.

"Service Level Agreements will be examined far more closely and there will be increasing pressure for regulation of the Cloud. This demand for accountability will only continue to intensify as more and more businesses consider migrating critical business applications to the Cloud," he added.

For more coverage of what the cloud market has in store for the channel read the forthcoming March MicroScope ezine.

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