Cloud Prices Are Hurting Enterprises Bad, But There Might Be Ways Out

The discussions around companies facing an ongoing cloud crisis are everywhere. According to a recent report published by autonomous solution provider company Anodot, almost 50% IT professionals are currently facing difficulties in controlling cloud costs, and almost a third of the respondents witnessed a 25–50% hike in cloud prices. 

Amidst the debate over increasing prices, cloud economist Corey Quinn expressed concerns over Google’s recent decision to increase its prices even further w.e.f. October 1. “Google is all set to put fire to its reputation and hurt customer sentiments,” Quinn said. 

Over the past decade, cloud adoption has significantly grown in terms of popularity, mirroring the increased trust in individual cloud providers and cloud models. However, the price hike has changed the game for everyone. Anodot further reports that monitoring costs, optimizing resource use, and forecasting future spend are some challenging areas to tap while managing cloud costs. Leon Kuperman, the chief technology officer at CAST AI, termed the rising cloud prices as cloudflation.

In an exclusive interaction with Analytics India Magazine, Vishal Prakash Shah, co-founder & CEO of Synersoft Technologies Private Limited, said, “It is going to be a severe problem in times to come. Cloud infrastructure costs are closely correlated with price trends in energy, real estate, bandwidth, and semiconductors. AWS is a pure cloud infrastructure provider, Google Cloud and Microsoft Azure are infrastructure providers as well as SaaS providers. They have deep pockets to burn money to acquire customers.” 

Founded in 2008, Synersoft is the maker of disruptive technologies for SMEs, now branded as BLACKbox. It is an incubated and invested portfolio company of CIIE – IIM-Ahmedabad. Enhancing their competitiveness with state of the art IT standardization.

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Read the full interview below.

AIM: How are cloud players tackling cloudflation while maintaining customer centricity in a price-sensitive market like India?  

Shah: Cloudflation is a severe problem for cloud service providers. There are two types of cloud service providers: 1) offering cloud infrastructure services to customers; and 2) offering software as a service solution to customers. Mostly, category one is a service provider to category two and enterprise customers. Most SaaS providers in India have resorted to the freemium or subsidized business model to penetrate the market and acquire customers. 

As the cloud infrastructure service providers increase the cloud fees, the input costs for SaaS providers go up. It puts pressure on SaaS companies operating on a freemium or subsidized basis. They deal with such a situation either by increasing their burn rate to retain the customers or by increasing prices, letting the churn-out happen.

AIM: How do you perceive the problem of cloudflation on a holistic and ground level?

Shah: It is going to be a severe problem in the future. This is mainly because of internal competition in the SaaS industry and the mentality of burning money to win customers. It is like a ‘Catch Me If You Can’ problem. First, companies subsidize fees or offer free services to acquire customers, hoping that once the customer realizes the value of the service, they will pay for it. Then they gradually begin charging customers or increasing fees, discovering a newly invested competitor willing to burn money to win the customer. Cloudflation will worsen this by reducing the runway and intensifying the burn rate.

AIM: What are the vital steps companies take to dodge the problem of cloudflation while maintaining prices?

Shah: Companies have started exploring the availability of cloud services from cold-climate countries whose data centers are cost-effective. Cloud infrastructure hosting costs in India and some western countries are startlingly different. That’s how one can dodge the problem. But the party is not going to last for too long. The government of India is deliberating on a data localization policy for its citizens’ data, moreover, India will have its own version of GDPR shortly. In my opinion, the cost-effectiveness sought by importing cloud infrastructure services is not a long-term solution. India will face cloudflation, given the rise in infrastructure, bandwidth, energy, and hardware costs.

AIM: To settle the spiking cloud price issue, what is your perspective on investing in renewable energy, semiconductor innovation, and existing nuclear power sources as the only alternatives?

Shah: Cloud infrastructure costs are closely correlated with price trends in energy, real estate, bandwidth, and semiconductors. Concerning India’s interest, the Vedanta and Foxconn deal and many other joint ventures in the pipeline will be game changers. Just like cold countries have a cost advantage by using less energy to cool off the processors, solar abundance in India will be a balancing factor for us. The possible use of abundantly available solar energy to power data centers coupled with locally available semiconductors will work in favor of cloud-dependent businesses.

AIM: Do chip shortages have an impact on public cloud costs?

Shah: It does have an impact. Budgets have gone haywire due to acute price rise. The projects to create local cloud infrastructure and bandwidth are delayed due to the short and uncertain supply of chips.

AIM: Do you think the lack of competition (since AWS, Microsoft Azure, and Google Cloud are the only key players) is directly related to its growing price?

Shah: AWS, MS Azure, and Google Cloud enjoy an obvious oligopoly. They have deep pockets to burn money and acquire customers. The recent price changes by Google and Microsoft substantiate the fact that they can increase the prices of dependent customers owing to the lack of competition. It is the same phenomenon everywhere.

AIM: How does your business perceive the problem of geopolitical tensions in cloudflation? 

Shah: Current geopolitical tensions are the driver of the uncertain and short supply of chips and rising energy prices catalyze cloudflation. Synersoft is severely affected. The components used in our products are costlier, and the supply is uncertain. Google recently discontinued MSME-friendly products such as 100 GB of storage, forcing MSMEs to upgrade all of their users to a 2000 GB subscription if they required more than 30 GB of space for a single user. Cloudflation has made us realize the consequences of adopting widely promoted cloud computing. Businesses like us are seriously thinking of on-premise deployments that have immunity from cloudflation.

 AIM: What are your thoughts on the growing supercloud trend amidst cloudflation?

Shah: Supercloud is a step to lower the exit barrier for switching from one service to another. It is similar to the olden-days practice of continuing with our mobile service providers as we could not afford to lose our widely known mobile number. With portability becoming a reality, we could retain our mobile number and migrate to a more cost-effective service provider. What portability is in telecom, supercloud is in SaaS. It is desired to break the oligopoly and allow customers access to more competitive services. 

In the absence of supercloud, customers will have to accept unreasonable charges by established cloud providers because they cannot migrate to another cost-effective service provider. The cloud industry would only be dominated by a few monopolistic players without supercloud. To quote a few examples, the recent announcement by Microsoft that it will not support IMAP/POP protocols will make it very difficult to migrate email systems to other cost-effective providers. Also, the recent policy changes by Google forced customers to upgrade all the users from Business Starter (30 GB) to Business Standard (2000 GB) at four times the cost in the event of a single user requiring more than 30 GB of storage.