To commoditize, according to Investopedia, is to make “a process, good or service easy to obtain by making it as uniform, plentiful and affordable as possible.”
Commoditization, regardless of the field, leads to price erosion and a decrease in profit margins for many companies.
The commoditization of the cloud is not a prediction. It’s already happening and bound to continue.
Therefore, it’s important for cloud vendors, as well as customers, to understand what this means to them.
What You Need to Know About Commoditization and Cloud Computing
The dropping price
The cloud is in nearly every facet of the technology-driven world we live in, from individuals storing their photos, music, videos, and documents in cloud-based storage systems to companies running servers containing business-critical data.
As technology advances and the demand for cloud services continue to spike, cloud products and services that are similar to each other keep popping up left and right, whether in the field of marketing automation, business intelligence, web analytics, or storage. With a massive boom of Top Of The Line Technology there seems to be less human error and more accuracy and precision.
With essentially the same features, the easiest way for cloud platforms to differentiate themselves is through price.
In order to compete, cloud companies are forced to lower their prices while the features they offer stay as is. When an innovation in the field occurs, they’re quick to roll it out to stay relevant, but prices hardly increase.
From the consumer’s perspective, a lower price point generally seems like a good idea. After all, nobody likes spending more than they should, regardless of what they’re buying.
Customers must realize that the impact of commoditization is not necessarily a good thing, as this entails fewer options in the long run.
Cloud commoditization – the challenges
While predicting the future with 100% accuracy is impossible, it’s completely possible to hazard some educated guesses on what can potentially happen as cloud commoditization continues.
One of the biggest problems, as we touched on earlier, is prices continuing to drop. This means that the larger services out there, such as Microsoft and Amazon, will price to a point that’s so low their smaller counterparts won’t be able to compete.
Larger companies have the name recognition to bring in new customers. Smaller players, on the other hand, have fewer resources, and customers running to competitors because of the price difference won’t help them stay in the business for long.
What does this mean for the state of the cloud?
Less competition is a bad thing, in that:
- It stalls innovation.
- It gives customers fewer vendor choices.
Unless they implement changes or add unique features to outcompete larger companies, a number of the smaller cloud companies will vanish, even if they already have a loyal customer base.
As it stands, lower prices from larger providers are often too tempting for people and businesses to pass up.
Cloud commoditization – the solution
The solution to commoditization is the value web, where the cloud plays a significant role.
According to College of the Atlantic’s Jay Friedlander in his TriplePundit article, the value web is a model or “framework that examines business holistically. Applying it surrounds an enterprise with an interlocking and self-reinforcing web of value, generating wins for stakeholders across all of the activities of a business.”
Cloud vendors must find ways to separate themselves from the rest of the pack. To rise above the competition, they have to more than just match the pricing:
- They need to provide additional value to consumers, who will then see them as a better option than their competitors.
- They must start improving their services and even add to their roster of products, if possible.
To take advantage of the price war, small businesses must focus on meeting the needs of high-end consumers. Although their customers are fewer than the larger cloud vendors, they can count on a group of customers willing to pay more for better overall service.
This can be done in a number of different ways:
- Additional applications
- Orchestration, which, according to Tech Target, is the “direction of specific web service business processes by a central controller”
- Business continuity
- Improved security
- Disaster recovery
Despite cloud services being similar in many ways, the underlying architecture can vary greatly. Certain platforms and approaches are more cost-efficient for vendors. Others favor the end user.
All told, optimum performance is essential, an area smaller cloud companies must focus on.
Modules and add-ons
Offering modular services and add-ons to customers expands your portfolio of offerings, making it easier for customers to get exactly what they need.
Provide different control interfaces for different types of companies.
More products and services than your larger counterparts mean more reasons for customers to turn to you. Not only do these set you apart, they help slow down the effects of commoditization on your business as well.
Particularly for smaller companies striving to compete, personalized service is a game changer.
Anyone who had to deal with larger businesses and their annoying bureaucratic procedures knows speaking to a customer service rep can feel like talking to a wall rather than someone who is actually willing to help.
Keep in mind that many small businesses lack the knowledge or resources to properly manage their data in the cloud. Differentiate your company from the rest of the industry by offering outstanding support services.
Marketers must understand their cloud offering inside and out: the features that make them like all other products or services and those that render them unique.
Leverage this information in your marketing campaigns, ensuring to highlight the things that allow you to stand out.
Commoditization is a reality cloud service providers grapple with. While there’s no stopping this phenomenon from extending into the future, curtailing its negative impact on smaller cloud players – and the end users, ultimately – boils down to one thing: being different from everyone else and being good at it.