Cloud providers ensnare and overcharge customers, restricting flexibility

It’s an ideal business model for companies—services are challenging to switch, and minor price increases often go unnoticed

Netflix has recently revealed yet another price hike, albeit a small one. At first glance, it may seem insignificant, but this increase follows a similar one in 2022 and now varies between 16% and 20%, depending on the subscription plan. Why is Netflix implementing these increases? Simply because it can. Recognizing the loyalty of its customer base, Netflix understands that most subscribers will continue with the service despite the slight uptick in cost. As a Netflix enthusiast, I’ll willingly accept the adjustment.

Notably, Netflix is not alone in the trend of price hikes among online service providers over the past year. Major players in the cloud computing sphere are implementing price increases across the board. Microsoft, for instance, raised the prices of its Microsoft 365 office applications by approximately 9% in various countries. In a parallel move, Google, a close competitor in this domain, introduced up to a 20% increase in its monthly prices for Workspace. Salesforce.com, a prominent provider of customer relationship management products, also joined the trend, raising the monthly fees for many of its products by 9%.

Companies subscribing to Comcast for internet services are experiencing elevated monthly costs, while consumers relying on Spotify for music are now subject to a 10% increase in its premium service fee. The leading providers of cloud storage and applications, including Microsoft, IBM, Amazon Web Services, and Google Cloud, have uniformly raised their hosting and storage charges, with increments ranging from 11% to as much as 50% compared to the previous year.

This business model is unprecedented and highly advantageous for software providers. However, what about the users, particularly small businesses? Consider a scenario where a company has heavily invested in a specific cloud platform to conduct its operations, hosting all its data, building integrations, customizations, and specialized applications. Significant financial resources have been allocated to consultants, experts, and training to optimize employee utilization of these platforms. Similar to Netflix and Spotify users, the familiarity and value of these products are ingrained. Consequently, when faced with a price hike, while there may be grumbling, the inertia of cost and disruption prevents a shift, leading users to reluctantly accept the increases.

The cloud operates on a business model where companies can almost arbitrarily increase prices

A business model prevalent in the cloud allows companies to adjust prices almost at will. While some argue that data security is the primary challenge with cloud hosting, many users perceive control as the real issue.

In the cloud, users enjoy real-time access to the latest applications and software updates. They can conveniently retrieve their data from virtually any location and device. Opting for managed service providers ensures better resources for securing and safeguarding their data. This marks a significant improvement over traditional setups involving on-site servers and interconnected Windows computers supported by local IT professionals.

However, reaping these benefits introduces a significant unknown: what will be your future annual costs? This determination lies not in the hands of the user but in the hands of the technology industry. It encompasses not just the current monthly fees paid by consumers and small businesses but also the ongoing fluctuations in these fees.

Similar to Netflix, significant cloud providers, and even smaller cloud-based software platforms, have the ability to raise prices as they see fit. While there may be concerns about potential public backlash, particularly when prominent brands like Netflix or Microsoft implement price hikes, the media tends to overlook the frequent monthly fee increases imposed on small businesses by lesser-known yet vital vertical applications. These applications play a crucial role in managing orders, inventory, billings, and payroll. For instance, Zoho, a CRM provider, raised its monthly fees by 15% last year. Cloud-based accounting application Xero increased its monthly fees by approximately 6%, and Zendesk, a leading provider of cloud-based customer support applications, also implemented a price hike.

Protecting ourselves from inevitable cost increases is a challenging task. For most individuals and small businesses, convincing a software vendor to commit to a multiyear agreement or holding prices steady is impractical. Software companies typically avoid making such commitments. Additionally, unless the price increase is substantial, which is rarely the case as small increments often go unnoticed, the effort and disruption involved in transitioning to another cloud-based provider make it an unappealing option. While this may be a drawback for small businesses and consumers, the cloud’s flexibility in pricing is considered advantageous for the tech industry and companies like Netflix.