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Is Cloud Computing Losing Its Value Proposition?

Can cloud offering cost keep pace with hardware price reduction?

We all know that hardware prices always comes down – but have you noticed any such trend in cloud computing? So, what happens when hardware prices keep coming down and cloud service pricing remains steady? The cloud value proposition of lowering IT costs slowly disappears … right?

There is no doubt that the range of services available has significantly increased but on the price front there has been very little movement. Yes, if you want to try cloud for free then you have more alternatives today – for example, Amazon has introduced a micro instance.

Google App Engine prices have remained more or less the same since the launch. Same is true for Microsoft Azure. Amazon is not much better. Since the launch of AWS there has hardly been any price reduction. Between mid and end 2009 Amazon announced around 15% price reduction on a range of its services, which is probably the only instance.

Compare this with the drop in price of available processing power and storage where the prices have been halving every two years. Have a look at the statistics below. The footprint has also been reducing with the price, thereby also reducing the management overhead.

If you superimpose this steady pricing of the cloud service what can you conclude?

  1. What was very cost effective (50% less) 2-3 years back may only be marginally cost-effective.
  2. If the cloud cost does not come down, cloud services will cease to be cost-effective.

Moore’s Law and other related statistics
Moore’s law
describes a long-term trend in the history of computing hardware. The number of transistors that can be placed inexpensively on an integrated circuit has doubled approximately every two years. The trend has continued for more than half a century and is not expected to stop until 2015 or later. The price of processing power has shown a similar decline. Here is the statistics from Wikipedia.

Matthew Komorowski has collected hard drive capacity/price data and created the graph below. The cost reduction is in the order of about 40-45% per year – which means it becomes half in 2 years. This trend is visible for last 30 years and likely to continue for some more time to come.


Interesting Infographics



More Stories By Udayan Banerjee

Udayan Banerjee is CTO at NIIT Technologies Ltd, an IT industry veteran with more than 30 years' experience. He blogs at
The blog focuses on emerging technologies like cloud computing, mobile computing, social media aka web 2.0 etc. It also contains stuff about agile methodology and trends in architecture. It is a world view seen through the lens of a software service provider based out of Bangalore and serving clients across the world. The focus is mostly on...

  • Keep the hype out and project a realistic picture
  • Uncover trends not very apparent
  • Draw conclusion from real life experience
  • Point out fallacy & discrepancy when I see them
  • Talk about trends which I find interesting

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