Public Cloud Costs to Rise "at least 30%" in 2023 Warns Analyst Firm

Steve Brazier, President and CEO of tech market analysis firm Canalys, has warned that public cloud prices are set to rise. 

Speaking at the Canalys Channel Form EMEA 2022 in late October 2022, Brazier said...

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...

The main reason for the rise? Increased energy costs.

Cloud providers don't just have to pay to power their servers, but also their networking equipment and data storage devices. They then have to cool this equipment. 

Brazier mentioned he had spoken to a data centre provider whose energy costs had quadrupled. However, statistics from the European Commission suggest average rises have been closer to 60% over recent years. 

In the UK, the Government has capped wholesale electricity prices from October 1st 2022 to March 31st 2023, subsidising many data centres and cloud providers temporarily.

However, from April 2023, the UK Government intends to adjust that support so it's targetted just at the organisations "most affected" by energy price rises. It's not yet clear how much help - if any - will continue to be available to data centre operators and cloud providers.

Another factor driving up cloud hosting costs is interest rate rises. Modern data centres are expensive to build and are usually built with borrowed money. As interest rates rise, the builders of data centres need to raise their prices if they're to cover these increased costs.

The chip shortage is also causing price rises by keeping the cost of network equipment higher than it would otherwise be. 

Are Public Cloud Prices Really Going to Rise in the UK?

We suspect so, though we're not as certain of that as Canalys.

Over 70% of European public cloud revenues go to hyperscale cloud providers such as AWS, Azure and Google. From June 1st 2021 to November 29th 2022, the USD/GBP exchange rate went from $1.4467 to $1.1975. This meant that businesses in the UK were hit with a price rise of just over 20% for services priced in dollars.

Bear in mind that Canalys's prediction is for 2023, i.e. it is predicting further price rises to come.

The extent of any price rise will depend on what happens to energy prices from April 2023 and cloud providers' responses.

How Can You Minimise Cloud Price Rises?

Cloud providers are often willing to lock in prices for several years in advance. In return for that commitment, there's often a discount. Now that hosting prices may be heading up rather than down, the case for signing a multi-year hosting contract is stronger than usual.

If your organisation's primary currency is sterling, you can partially insulate yourself from exchange rate fluctuations by signing up to a UK cloud provider. The protection is partial because many software licence costs still tend to be based on dollar-based prices.

Thirdly, you can cut your cloud costs by optimising your workloads. You'd be surprised how often IT Managers over-spec their on-premises systems then replicate that largesse in the cloud. Our cloud architect is forever reviewing what organisations think they need, then gently nudging them towards more appropriate specifications. 

Fourthly, you can often cut costs by switching from dedicated hardware to multi-tenanted alternatives, when it comes to your server, firewall and PBX requirements. For example, using Azure AD rather than running your own Active Directory server. This not only cuts costs but is likely to improve scalability and resilience, and speed up provisioning. We often talk to organisations that initially think they need a dedicated private cloud. After discussions, they often decide that a virtual private cloud on our resilient multi-tenanted cloud platform would be a more affordable, scalable and future-proof alternative.  

How hSo Can Help You Control Your Cloud Costs

Our prices are in pounds, so are less affected by exchange rate movements than the services of the big US cloud services which price in dollars.

Typically, we provide customers with a pool of resources that can be reassigned between different virtual machines at will. This makes budgeting easier. You know the fixed cost of the pool, but retain the flexibility to add new virtual machines, reallocate resources and over-contend resources as you see fit, just like you could with on-premises servers.

Our cloud architect can work with you to ensure your new cloud has the right specifications. This can make a huge difference to costs. Bear in mind, if you later decide you need more resources, that is often a trivial and rapid change to implement, so you can afford to be slightly parsimonious initially and see how well that works.

If you'd like to learn more about how we can help, check out our cloud design & build and cloud hosting services. Alternatively, give us a call on 020 7847 4510.