- Inflation fueled by rising energy prices will drive AWS, Microsoft and Google to raise cloud prices in Europe by 30%, according to a Canalys report released Tuesday.
- Increases of that magnitude are not expected in the U.S., where oil and natural gas prices are lower, according to Alex Smith, VP and channels research department lead at the technology research firm.
- “Rising interest rates impacting capital lease costs and wage pressures are bigger challenges to manage in the U.S. market,” Smith said. On the domestic front, “you already see the hyperscalers extending the accounting useful lives of their servers [in the U.S.], which will help extract more operating margin and put less pressure on go-forward capital purchases.”
Worldwide economic pressures have slowed growth for the hyperscalers, a trend that’s likely to continue as long as current macroeconomic conditions persist, pushing companies to look for ways to trim budgets.
The global annual growth rate for the big three cloud companies dropped below 30% in the third quarter, the lowest rate measured by Canalys “since the inception of the market,” Smith said.
By Canalys’ count, the big three share of the global cloud market is 63%, down from Synergy Research Group’s estimation of 66%. AWS commands 32%, followed by Microsoft and Google Cloud, with 22% and 9% respectively, according to Canalys.
In the U.S., inflation, rising labor costs and interest rates that climbed another three-quarters of a point this week to nearly 4% — the highest rate since January of 2008 — have yet to put a damper on cloud spending.
While cloud spend only increased by 24% year over year in the third quarter, domestically that rate was 30%, according to Synergy Research Group’s analysis.
Quarterly cloud infrastructure service revenues in the U.S. alone accounted for $23 billion for the three-month period ending Sept. 30, according to John Dinsdale, chief analyst at Synergy Research Group. That’s a big chunk of the $57.5 billion spent globally.
Amazon, Microsoft and Alphabet all signaled their intention to control cloud costs last week during quarterly earnings calls. But that may only apply to customers in the U.S., where the strategy will be to keep compute costs down while increasing margins on advanced features, Smith said.
“It will be through launching new services and new versions of product and service offerings that have higher margins and higher price points,” said Smith. “They’ll be trying to extract more margin by offering higher value products rather than by raising the price of basic services.”
That strategy just isn’t practical across the Atlantic, due to the cost of running data centers in Europe.