Is Cloud losing its Value Proposition

We all know that hardware prices always comes down – but have you noticed any such trend in cloud computing? So, what happens when hardware prices keep coming down and cloud services pricing remains steady? The cloud value proposition of lowering IT costs slowly disappears … right?

There is no doubt that the range of services available has significantly increased but on the price front there has been very little movement. Yes, if you want to try cloud for free then you have more alternative today – for example Amazon has introduced a micro instance.

Google App Engine prices have remained more or less the same since the launch [Update-Sept,2011: Google has changed the pricing in line with other providers].

Same is true for Microsoft Azure. Amazon is not much better. Since the launch of the AWS there has hardly been any price reduction. Between mid and end 2009 Amazon announced around 15% price reduction on a range of its services is probably the only instance.

Compare this with the drop in price of available processing power and storage where the prices have been halving every 2 year. Have a look at the statistics given below. The footprint has also been reducing with the price thereby also reducing the management overhead.

If you superimpose this steady pricing of the cloud service what can you conclude?

  1. What was very cost effective (50% less) 2-3 year back may only be marginally cost effective.
  2. If the cloud cost does not come down, cloud services will cease to be cost effective.

Moore’s Law and other related statistics

Moore’s law describes a long-term trend in the history of computing hardware. The number of transistors that can be placed inexpensively on an integrated circuit has doubled approximately every two years. The trend has continued for more than half a century and is not expected to stop until 2015 or later. The price of processing power has shown a similar decline. Here is the statistics from Wikipedia.

Matthew Komorowski has collected hard drive capacity/price data and created the graph below. The cost reduction is in the order of about 40-45% per year – which means it becomes half in 2 years. This trend is visible for last 30 years and likely to continue for some more time to come.

Interesting Infographics

13 Responses to “Is Cloud losing its Value Proposition”
  1. pahariayogi says:

    I also think ‘Cloud’ being a service, it may not match the trend of hardware price reduction as manpower cost rising day-by-day.
    Outsourcing from cheaper location like India etc may also not help in long term due to increasing salary of staff, location, power & other input cost.
    However, it should always be a value proposition from Total Cost of Ownership (TCO) view point.

  2. Sanjay says:

    In my opinion, for a establishment, choice to move to Cloud is not only limited to hardware, but it is also a matter of ease and turnaround time, while I understand lowering hardware price may outperform cloud services benefits in short term, but going forward when Cloud Services and Cloud will have more mature business model, It will have huge relevance for starter companies, may be not so much relevant for already established companies.
    On second thoughts, it may even be quite significant for established companies when a company is looking to launch a service and not so sure of its service/application future and don’t want to spend significantly to build a hardware infrastructure.

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