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Cloud service companies lock customers in while nickel-and-diming them

By November 5, 2023No Comments

(This column originally appeared in The Guardian)

Netflix recently announced another price increase. It was just a couple of bucks. No big deal, right? Wrong.

This price increase comes after another announced increase back in 2022 and this time actually ranges from 16% to 20% depending on the service. Why is Netflix doing this? Because it can. Netflix is no dummy. It knows that almost all of its customers will stick with the service even though it’s costing a little more. And they’re right. I love Netflix, so I’m going to pay.

Netflix isn’t the only online service provider that’s increased prices in the past year or so. Big cloud is upping its prices everywhere. During this period Microsoft raised the prices of its Microsoft 365 office applications in various countries by about 9%. Its closest competitor in this space, Google, increased its Workspace monthly prices by as much as 20%., the leading provider of customer relationship management products, bumped up the monthly fees on many of its products by 9%.

Businesses getting internet service from Comcast are now seeing higher monthly charges and consumers getting their music from Spotify are now paying 10% more each month for its premium service. The largest providers of cloud storage and applications – Microsoft, IBM, Amazon Web Services and Google Cloud – all have increased their hosting and storage fees anywhere from 11% to as much as 50% compared with a year ago.

This is a business model unlike anything we’ve seen in the past and it’s awesome … for the software providers. But what about users? What about my small business?

Let’s say you’re a company that has invested significantly in one of these cloud platforms to run your business. You’ve got all your data there. You’ve built integrations, customizations and specialized applications. You’ve spent great amounts of money on consultants, experts and trainers to help your employees get the most from these platforms. Like Netflix and Spotify, you’re used to these products and value their familiarity. So when there’s a price increase you may grumble, but you’re not going to change. You know it would be too costly and too disruptive. So you just accept it.

A business model where a company can increase prices almost at will? That’s the cloud. Some say that security of our data is the biggest challenge when hosting in the cloud. But that’s not it. For most users, control is the real issue.

Because of the cloud, users get the most recent applications and software fixes in real time. They can easily access their information from anywhere and from just about any device. They can store their data with managed service providers who have more wherewithal and resources to secure and protect it. All of this is an improvement over having a server and a bunch of clunky Windows computers connected to it in your office that’s supported by some IT geek down the road.

But having all of these benefits comes with a great variable: what will be your future annual cost? That’s not up to you. It’s up to the technology industry. It’s not just the monthly fees that consumers and small businesses are paying today, but the monthly fees that we will be forced to pay tomorrow. We don’t have control over this.

Like Netflix, the big cloud providers and even smaller cloud-based software platforms can pretty much increase their prices at will. You may say that these companies need to be careful of a public backlash, and to some extent that’s true because whenever a well-known brand like Netflix or Microsoft raises prices there’s always some short-term media blowback.

But the media doesn’t pay much attention to the frequent monthly fee increases levied upon small businesses by unfamiliar, but just as important, vertical applications that control their orders, inventory, billings and payroll. For example Zoho, a lesser-known but popular customer relationship management provider, increased monthly fees by 15% last year. Xero, a cloud-based accounting application, bumped up its monthly fees by about 6%. Zendesk, a leading provider of cloud-based customer support applications, also increased its monthly fees.

How can we protect ourselves from these inevitable cost increases? We can’t. Unless you’re a huge company, you’re not going to be able to persuade your software vendor to lock into a multiyear agreement. And no software company is going to commit to holding prices the same. And unless the price has increased dramatically (which it never does, because these people know that small increments usually fly under the radar), you’re not going to endure the pain and suffering of moving to another cloud-based provider, especially when that provider is ultimately going to do the same thing to you.

For small businesses and consumers, that’s what’s wrong with the cloud. But for the tech industry and companies like Netflix, it’s a beautiful thing.


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