Cloud Connect - Pricing Strategies for Private Clouds

I had the pleasure of speaking at Cloud Connect in Santa Clara on Tuesday. Topic of the presentation was “Pricing Strategies for Private Clouds." The track was moderated by Lauren E. Nelson, a Researcher from Forrester Research. The talk focused on private cloud pricing not public, and pricing, not charging. Charging is another can of worms requiring chargeback systems, integration with financial systems, etc.

A video of the presentation can be seen here:

 

Some observations and updates from the talk. The audience was composed of vendors but also some IT professionals running hard core private clouds. In general, the five reasons for pricing private clouds we discussed were:

  1. Budgeting
  2. Reduce waste and over allocation
  3. Drive IT to operate as a business
  4. Enable open market competition

Walking through these reasons, there was general agreement from the audience that waste reduction is a critical component of this process, if not the most important. Pricing out private cloud services was also important for getting funding to reinvest and grow the cloud environment.

Walking through the pricing triangle of cost, competitors, and value yielded a lively discussion. From a cost standpoint:

  • One IT administrator reported that public cloud providers where unable to provide a competitive bid for their 85,000 seat email environment
  • A second IT administrator reported that for test and development, their $1M price tag was easily beaten in both time to stage and cost ($3,000) offered by a public provider

There appeared to be general agreement that from a cost standpoint, test and development worked for public clouds. When we discussed competitive pricing and value, one administrator was quick to point out that the public cloud providers are not his “competition”. Rather, he sees IT as the broker for services.

From a value standpoint, the top value issues internal IT provided over public clouds were:

  • Customization
  • Reliability
  • Support for home grow applications
  • Security
  • Compliance
  • Performance and latency

The reliability comment surprised me. We spent some time discussing it and the general experience was that internal IT is still more reliable than public cloud providers.

We embarked on a lively discussion as to whether IT’s customers appreciated these value points. The results were mixed. But the lack of this appreciation for IT’s value added services was core to internal customers seeking out public cloud providers.

The most controversial part of the presentation was the recommendation on whether to reveal actual prices of cloud services to internal IT customers. My premise, that unless the goal of pricing IT services was to compete with external providers, avoiding the direct comparison was the best route. In other words, price cloud services as a loss leader since the value to the corporation of a customer using internal systems is higher than the value to end IT customer.

Cloud Connect was an enjoyable experience. To the audience, thank you for participating and providing new ideas on this topic.

Anonymous