A strange thing is happening in cloud computing: pricing continues to drop even as more competitors enter the fray, and the functionality available increases. For smaller companies or limited-use cloud applications, pricing may be the ultimate in affordability: free. An interesting confluence of factors has created this unique period in cloud computing.
Cloud gets nasty
From a vendor perspective, the cloud is a tough place in which to operate right now. Cloud services generally favor startups that have designed their offerings from the ground up to perform successfully in this environment. Where it might take tens of millions of dollars for an entrenched ERP software vendor to make their offering available on the cloud, it might take a few months and a hundredth of the cost for a startup to offer a compelling subset of the functionality in a cloud format. Furthermore, the wide availability of basic infrastructure ranging from hardware to databases lets new entrants stand on the shoulders of other cloud providers.
The big vendors simply can't ignore cloud computing and are tripping over themselves to offer cloud-based products. However, they're forced to compete on pricing with these new entrants, essentially bringing high-powered enterprise functionality down to a commodity-pricing model. It's as if every retailer in the world suddenly decided it had to compete on price with Walmart, but couldn't dramatically change its product mix.
The customer wins big
This competition on functionality and pricing has resulted in real bargains for enterprise technology consumers. Even if your company is not ready to make the leap into cloud, offerings from competitors, or interestingly cloud-based offerings from your traditional software vendors, can provide a leverage point when renegotiating pricing. Some of the major vendors are even beginning to price their traditional software offerings similarly to cloud providers, using a usage-based metric that allows companies to buy software on an as-needed basis rather than monolithic blocks of licenses.
Price shopping is critical
Even if you have no interest in adopting cloud technologies, now is a great time to shop around and investigate pricing, especially with your current vendor's cloud offerings. If you find yourself negotiating the same style of contract, with the same terms you were offered five or seven years ago, you may be leaving money on the table. Even without price shopping, vendors may be willing to offer different terms, perhaps going so far as to bundle licensing, maintenance, and bundling costs into a per-user, per-month model similar to most cloud providers. Increasingly flexible financing and competition from cloud providers have made these arrangements far more possible.
You can't ignore cloud
Cloud computing is not without challenges, but the speed of implementation and flexible pricing can no longer be ignored. Even if you are adamantly against using cloud for compelling and rational reasons, it's worth investigating the various offerings, prices, and delivery models, which represent the future of software delivery. While many traditional vendors will struggle to adapt to this new reality, enterprise software consumers will strongly benefit.
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Patrick Gray works for a global Fortune 500 consulting and IT services company and is the author of Breakthrough IT: Supercharging Organizational Value through Technology as well as the companion e-book The Breakthrough CIO's Companion. He has spent over a decade providing strategy consulting services to Fortune 500 and 1000 companies. Patrick can be reached at firstname.lastname@example.org, and you can follow his blog at www.itbswatch.com. All opinions are his and may not represent those of his employer.