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Azure price hikes unlikely to impact U.S. customers

Currency fluctuations are behind an Azure price hike from Microsoft, but it's more of a blip in the market than a larger trend.

Microsoft plans to raise prices for Azure in some countries, but it doesn't signal an upward trend in cloud costs. The idea of cloud prices going up is the polar opposite of what many observers expect from public cloud vendors, though that's exactly what Microsoft has planned for customers in Australia, Canada and Europe.

The tech giant is being coy about how much the Azure price will spike, but it appears to be related to currency fluctuation and is expected to be more of an anomaly than a larger shift in the cloud market.

"This has absolutely nothing to do with the state of the cloud market, the demand for cloud services or anything underlying cloud," said Dave Bartoletti, principal analyst with Forrester Research, Inc., based in Cambridge Mass. "It's completely based on currency risk in various countries."

There's also no indication the market is softening or that vendors feel like they can squeeze a bit more money out of customers with a price hike, Bartoletti said.

The Azure price hikes are expected to go into effect on Aug. 1 and will impact customers paying in euros, Danish krone, Norwegian krone, Swedish krona, Australian dollars and Canadian dollars. Customers billed in U.S. dollars won't be impacted by the price change, and enterprise agreement customers will have protection for the life of their existing contracts, Microsoft said.

The price hikes will focus on storage and could be as much as 13% in the EU and 26% in Australia, according to Bartoletti, who was briefed on the news. That sounds big, but with weakening currency, these customers have actually received a comparative discount until now.

"Rather than raising their prices relative to the rest of the world, this brings the Euro and Australian pricing in line with the U.S. and global markets," Bartoletti said.

Microsoft wouldn't say exactly how much they intend to raise prices but said in a statement that it periodically assesses pricing and "rapid evolution of the market for cloud services and evolving local dynamics" are behind these decisions.

Amazon Web Services (AWS), the market leader, and Google, which is often considered the third "hyper-scale" public cloud vendor, wouldn't comment about their own pricing plans, but analysts don't expect the pair to follow suit. Amazon and Google also price differently by region, but it's unclear if either vendor has ever increased prices in this manner before.

A blip in the cloud

"I regard it as almost a blip," said Owen Rogers, senior analyst with 451 Research, LLC, based in New York. "The cost of cloud is going down and will continue to go down, although perhaps not at the rate that is commonly thought of out there in the market."

Despite constant headlines from public cloud vendors about massive price cuts, the actual cost to run an application in the cloud – including compute, storage, SQL support, etc. – is only down 1.5% since October, according to the latest Cloud Price Index from 451 Research.

While price changes may impact customers hunting for the best deal, that won't be the case with most users, Rogers said.

"It's bound to impact customers but generally we find price is important, but customers are more interested in things like security, compliance and finding a trusted advisor," Rogers said. "End users and enterprises are willing to pay more for a service provider that can meet their requirements."

Baroan Technologies, an IT consulting company in Elmwood Park, N.J., partners with Amazon and Microsoft on cloud services. The company typically works with customers to calculate the five-year amortized cost of a product lifecycle for either doing everything in-house or moving it to the cloud. And while AWS and Microsoft both offer unique benefits, cost is certainly a key factor in that analysis, said Guy Baroan, founder and president.

"All things being equal, that is a component we have to look at from our clients' perspective," Baroan said.

And while industry observers don't expect regional cloud price increases to become a trend, it does highlight one potential downside to moving to the cloud. Previously, suppliers had all the risk with long-term contacts, having to eat the cost of underlying changes in things like electricity rates, but this is an example of how that's changing, Rogers said.

"Now with on-demand pricing, that risk is really being passed on to the enterprise," Rogers said.

Trevor Jones is news writer for TechTarget. Contact him at [email protected].

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