Public cloud prices to surge in US and Europe next year

Software-as-a-hostage? Freeing yourself from the fluffy white chains is not easy, even in face of inflation

CANALYS CHANNELS FORUM Public cloud prices are forecast to jump by almost a third in Europe next year as the cost of borrowing and energy squeeze providers. For the US, the expectation is for the price list to jump by a fifth.

The market exploded during the early days of the pandemic as much of the world switched to remote working, and continues to grow upwards of 30 percent each quarter with AWS, Microsoft, and Google the major beneficiaries.

Yet challenges loom, according to Steve Brazier, CEO at channel analyst Canalys, who pointed out that the cost of the ever expanding infrastructure for public cloud is "incredibly expensive."

"It's probably the biggest deployment of capital [that] has ever taken place in an industry and it happens quarter after quarter, year after year," he said at the Canalys Channel Forum EMEA 2022 in Barcelona. "We estimate this year the total spending of our seven top seven hyperscalers on capex will be $140 billion."

This includes buildings, networking gear, and other IT equipment. The analyst estimates, for example, that half of all servers shipped worldwide this year will be consumed by those top seven providers.

"The public cloud is a tremendous success," said Brazier, "and it occurred in the era of cheap money. Things are changing."

The cost of borrowing is rising in Europe. It went up by 22 percent in September, and the cost of energy reached record levels in the region last month. Brazier said he has spoken to datacenter providers whose energy costs quadrupled, so he thinks some of his calculations are perhaps conservative.

A seemingly relentless rise in inflation is also a problem stateside, and the Federal Bank is expected to raise interest rates to 4.75 pecent before the year is out.

"This is a major shift in the market," he told the audience of resellers, integrators, and service providers. "You need to prepare your customers for an almighty reaction [from the hyperscalers]."

The largest cloud providers can source capital, optimize energy supplies, and have ways of mitigating expanding overheads, but "the change to their business is pretty dramatic."

"We expect public cloud prices in Europe to increase at least 30 percent in 2023, causing an almighty shock to many of their customers who are also trying to get their costs down and leading to a lot of tension and a lot of aggravation between you and them and providers."

A British cloud provider told us it "unfortunately" may be a case of "Hobson's choice for consumers of hyperscale cloud who will need to balance rising costs against significant exit costs."

"Most customers will be locked in, given the costs of re-architecting applications written to proprietary APIs, reskilling internal technical teams and data egress, our source added.

"The energy crisis will throw the impact of lack of competition in this market into sharp relief, which is something I very much hope Ofcom takes into account in its current review of the UK hyperscale market."

Mike Norris, CEO at Computacenter, one of Europe's largest resellers, did not comment on the specter of prices heading northwards, but said the most frequent request from clients was how to get control of cloud costs.

"Cost control is the biggest challenge with the cloud," he said on stage. "Because it's not software-as-a-service, it's software as a hostage. You have no choice, you can't get out of it."

We have asked AWS, Microsoft, and Google if they anticipate altering the price list upwards next year. ®