Recently I was asked about a piece that appeared in The Wall Street Journal about the cloud services price war.
I find it interesting that cloud services has crossed over to the point where pricing is being used to sell (When in doubt cut price, right?). My feeling is that there is a lot more to the story, especially when considering the number of factors that come into play when considering data center services.
Here’s my take the impact of the cuts.
> The Customer. Usually, price wars favor the customer because they can get the same or more service for less. However, depending on the customer, this is not cut and dry. Many don’t require generic cloud services. Their needs are very specific and, quite frankly, they want to talk to a real person who will handle their needs and concerns. They like personalized care. If they can get their desired operational and business outcomes fulfilled for less, that’s a great thing. But that might not necessarily be the case with this price war.
> The “Big Guys.” The established big guys (i.e. name, name, name) already have scale and can leverage their infrastructure investment. They probably have wiggle room and can move as needed to accommodate their customers. Other “big guys” like established technology players HP and Cisco, looking to play in the space may benefit if they can shuttle business in their direction and then up-sell additional services.
If I were to pick a “big guy” to watch, it would be IBM. The addition of SoftLayer and commitment to marketing themselves will definitely pay off. IBM was everywhere during the Masters golf telecast with 62 different ads. In a New York Times article, IBM’s senior vice president for marketing Jon C. Iwata, said that collectively they “present the totality of the body of evidence” that companies should be investing in IBM technological products and services. Does Amazon, Microsoft or Google make a case as compelling as IBM?
What we are really witnessing is a step up from engineer-to-engineer selling to old school, classic IBM out marketing everyone selling. Maybe it says the market is maturing. But I digress.
> Specialists. With cloud price wars being featured in a prominent business publication like The Wall Street Journal, the idea of transitioning to the cloud may enter IT infrastructure conversations at companies where it had not been raised before. It gives mid-sized specialists a door opener. For example, there are quite a few cloud services providers who specialize in the needs of specific industries (think biotech/life sciences and financial). Such companies will not be comfortable plopping their valuable data in a ginormous data center just to save a few bucks. They will be concerned about security and reliability, along with that personal touch mentioned above. For sure, mid-sizers have a tremendous opportunity to package up their services and grow their customer base.
Who’s on the “Watch out” list?
Right off the bat, I’d say companies such as RackSpace (RAX) that are large, but not yet at the scale of AWS, may have the most to lose in this cloud price war as they will be forced to drop pricing to keep up. They may need to diversify and become more specialized and more personalized in their approach.
The cloud pricing wars are definitely indicative of an inflection point in the progression of IT infrastructure services. If anything, the topic warrants consideration from the service provider side as well as the customer side. Both will want to know how to best leverage the cloud to meet business and operations objectives. This point in the calendar year (start of Q2) seems to be a good time to spring into action regarding the cloud and meeting IT infrastructure needs.