In late February, longstanding cloud services provider Rackspace announced it was lowering its base price for bandwidth across its entire portfolio, and was implementing automatic tiered pricing for Open Cloud products. The vendor addressed the changes in its own blog, and the move has spurred on some interesting conversations. Why would this cloud giant cut prices? Is this commoditization? Is it a danger sign? Is it taunting … that is my favorite one; thanks to Larry Walsh, who writes: “Rackspace is taunting rivals with a 33 percent cut in its content delivery prices and new tiered pricing for open cloud services, which reduces costs by as much as 25 percent for lower storage volumes. The price cuts, which came after Rackspace announced a 30 percent increase in quarterly profits, are clearly designed to taunt rivals such as Amazon and attract new customers.”
Now, Rackspace says the change is to simplify pricing in support of partners; but as Walsh points out, the bottom line is that prices are falling. Good for the customers, yes. Bad for the channel, which goes through this cycle over and over again as innovation in IT continues.
I am not going to argue good or bad, or even right or wrong. I will say this – read Larry’s blog – think about the way this might impact your business, and remember that, as with all product, your true differentiator (and profits) come from what you layer on top. Cloud is no different. Want a profitable business, consider how to customize, integrate and service your cloud customers … don’t worry about price cuts.