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European cloud buyers unmoved by low prices, suggests 451 Research

451 Research’s latest Cloud Price Index investigates link between low-cost cloud services and provider market share

Cloud service providers are more likely to win customers based on the location of their datacentres and the range of services they offer, rather than rely on the low-cost of their virtual machines.

That’s according to 451 Research’s latest Cloud Price Index (CPI) report, which suggests users in the US, Europe and Asia-Pacific (Apac) are rarely influenced by service cost when deciding which provider to go with.

“For all regions, there is a limited relationship between price and market share. Being cheap doesn’t guarantee more revenue; being expensive doesn’t guarantee less,” said Owen Rogers, research director of 451 Research’s Digital Economics Unit and author of the report.

“It appears users are willing to pay for other things, rather than always going for the cheapest. We are a long way from commoditisation.”

The analyst house’s quarterly CPI report is based on a cost analysis of cloud-based compute, storage, database and management resources required to run a typical web server application.

The results have been combined with 451 Research’s Market Monitor and Forecast data, which assesses market share of the members of the cloud provider community, to see what impact service price has on the size of a supplier’s customer base.

Combining these datasets together allows 451 Research to assign a percentage-based cloud commodity score (CCS) to each provider. A score of 100%, for example, would suggest price has a huge bearing on a provider’s market share, while a score of 0% would suggest the opposite.

US most likely to buy cloud based on cost

There are some nuances in these markets, with US cloud buyers marginally more likely than their European and Apac counterparts to choose a provider based on price.

US providers scored an average CCS score of 18%, while European cloud firms chalked up a CCS of 12%, with 451 Research’s data revealing that users pay around 3% more for services in Europe than in America.

The size of the US market gives it economies of scale that makes it easier for providers to keep their prices low, the report states. Unlike Europe, the data protection regulatory landscape is simpler for cloud buyers to negotiate.

“The US is a single country, which might have different laws and cultures from state to state, but providers and consumers still operate under a single federal law with states that have shared philosophies and similar business practices,” said Rogers.

“Even the European Union, which some hope will become a federated collective, might share certain ideologies, but costs, taxes, fears, beliefs, governments, history and prejudices and other attributes vary significantly from country to country.”

Read more about cloud pricing

Microsoft has reinforced its commitment to matching the price of Amazon Web Services’ commodity cloud offerings by outlining plans to reduce its charges by up to 17% from February 2015.

Infrastructure-as-a-service player ProfitBricks vows to match the price and performance of any workload that users have running in Amazon, Google or Microsoft’s clouds.

Apac emerged in the report as the most impervious to price drops, with 451 Research concluding that – with a CCS of just 4% - cloud buyers are least likely to be swayed by low-cost cloud services than in the US and Europe.

According to Rogers, the report’s findings strongly suggest the cloud market is unlikely to become commoditised soon, despite the price-cutting efforts of Amazon, Google, Microsoft and others.

“Despite all the noise about cloud becoming a commodity, our research demonstrates a limited relationship between price and market share. Cloud is a long way from being a commodity. The real drama is the race to the top, rather than the race to the bottom.”

Read more on Infrastructure-as-a-Service (IaaS)