Big tech stands to benefit the most from the price increases.
Public cloud prices are forecast to jump by almost a third in Europe next year, according to a report in The Register. The jump is due to the rising cost of borrowing and energy “squeezing providers”, the article says. In the US, prices are expected to jump by a fifth.
The market exploded during the early days of the pandemic as much of the world switched to remote working. The cloud market continues to grow upwards of 30 percent each quarter with AWS, Microsoft, and Google the major beneficiaries, according to The Register. Steve Brazier, CEO of channel analyst Canalys, pointed out that the cost of the ever-expanding infrastructure for public cloud is “incredibly expensive”.
“It’s probably the biggest deployment of capital that has ever taken place in an industry and it happens quarter after quarter, year after year”, he said at the Canalys Channel Forum EMEA 2022 in Barcelona. “We estimate the total spending of our seven top seven hyperscalers on capex will be $140 billion this year.” This includes buildings, networking gear and other IT equipment. The analyst estimates, for example, that half of all servers shipped worldwide this year will be consumed by those top seven providers.
Bracing for an ‘almighty shock’
“The public cloud is a tremendous success”, said Brazier, “and it occurred in the era of cheap money. Things are changing.” The cost of borrowing is rising in Europe, Brazier warned. It went up by 22 percent in September, and the cost of energy reached record levels in the region last month.
Brazier said he has spoken to datacenter providers whose energy costs quadrupled, so he thinks some of his calculations are perhaps conservative. “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 and leading to a lot of tension and a lot of aggravation between you and them and providers.”