Editor's note: As part of our special editorial partnership, CRN is publishing this recent article from Channelnomics in the US
Rackspace is taunting rivals with a 33 per cent cut in its content delivery prices and new tiered pricing for open cloud services, which reduces costs by as much as 25 per cent for lower storage volumes.
The price cuts, which came after Rackspace announced a 30 per cent increase in quarterly profits, are clearly designed to taunt rivals such as Amazon and attract new customers.
"This simple and straightforward pricing approach is a key part of how we help customers take advantage of the real value of the Rackspace Open Cloud, particularly for the next generation of bandwidth and content-centric web applications, which must deliver quality user experiences on a mobile and global basis," chief technology officer John Engates said in a statement.
Over the past two years, cloud computing prices have been steadily falling, as competition increases for customers, assets under management and applications delivered as a service.
The price erosion isn't confined to hosting; storage, computation and content delivery have been falling as more service providers enter the market and competition increases.
Competition is good for end customers as it reduces their cloud computing cost, which is the leading reason enterprises and SMBs adopt cloud-based resources, according to the forthcoming CTTA State of the Cloud Channel 2013 report.
However, falling prices aren't necessarily good news for the channel. Solution providers continue to struggle with cloud profitability. The combination of fragmented revenue associated with the recurring fee structures, low vendor margins and limited ability to add value is suppressing cloud profitability in the channel, according to research by The 2112 Group, which publishes Channelnomics.
For a sign of things to come, look no further than the carrier market. As voice and data transport costs fall, carriers - particularly the large national and international carriers - are looking to offset compressed revenues and profits with hosting, application and management services.
Last week, AT&T launched a new channel programme, designed to draw in more solution providers and system integrators its cloud resources as part of their solution. Verizon is expected to announce a new channel program this week.
Just how Rackspace's unilateral price cut will impact the totality of the cloud computing market is uncertain. Rackspace's investors responded by slashing share prices by 9 percent. If the strategy does result in attracting new customers, other cloud providers will undoubtedly follow Rackspace's lead. And that will result in margin pressure on solution providers reselling or using such cloud services.
For more US channel coverage from Channelnomics, visit www.channelnomics.com
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