Why public cloud providers are cutting egress fees

Public cloud providers are often loathed for charging data transfer or “egress fees” for removing data from a specific cloud provider. If you move data out of a cloud provider, there’s a cost; for instance, you move inventory data from an inventory system residing in a public cloud provider to a supply chain system on premises or perhaps even on another public cloud provider.

This is the number one complaint about cloud providers that I hear. The fee is thought of as arbitrary and counterproductive to using the cloud with systems that exist outside of a specific provider. In some cases, it’s a reason applications are not in a cloud today.

The writing on the wall

This customer discontent is not lost on cloud providers, who are initiating a significant shift in their pricing strategies by reducing these charges. Google Cloud announced it would eliminate egress fees, a strategic move to attract customers from its larger competitors, AWS and Microsoft. This was not merely a pricing play but also a response to regulatory pressures, greater competition, and the significantly lower cost of hardware in the past several years. The cloud computing landscape has changed, and providers are continually looking for ways to differentiate themselves and attract more users.

Today the competition is not only other public cloud providers but managed service providers (MSPs) and regional cloud services. Microclouds are also emerging, driven mainly by generative AI and the need to find more cost-effective cloud alternatives for using GPU-powered systems on demand.

Changing governmental policies and market demand also put pressure on providers to remove or reduce these fees. The best example is the European Data Act, which is aimed at fostering competition by making it easier for customers to switch providers.

Moreover, in the evolving market, users are increasingly seeking cost-effective and efficient cloud solutions. Recently, the cost of cloud has come under scrutiny with enterprises not at all happy with the high cost of public cloud services that were originally sold to them as a cost-reducing technology. Not so much.

Following the leader

AWS followed suit by waiving data transfer charges for customers wishing to move their data outside AWS. The company highlighted that the changes would not require customers to alter their existing relationship with AWS, which is good news for those who manage these contracts and agreements. The likelihood is that other cloud providers will follow.

The implications of these changes are multifaceted. They signify the public cloud computing industry’s evolution to more flexible and competitive pricing structures. The increasing demand for genAI tools and systems will likely drive even more demand for public cloud services, so this is more of a goodwill move. It reduces the economic barriers to switching providers or, more often, to adopting multicloud and hybrid cloud architectures, which is the reality of cloud computing.

But it’s not all goodwill. Aside from regulatory pressures, there is also a broader recognition of the need for interoperability and easy data mobility across different cloud platforms. We’re moving to ubiquitous computing models and don’t seem to be looking at public cloud providers as the destination for all systems. “The cloud” is simply another option, as is on-premises, edge, mobile, etc.

Don’t cry for the cloud providers

Despite the dropped egress fees, businesses navigating the cloud environment must still grapple with other costs. In most cases of excessive cloud costs, egress fees don’t even come into the picture. Most shocking cloud bills come from not modernizing the systems that were moved to public clouds. Their inefficiencies translate into much larger bills since they use resources, such as storage and compute, less efficiently.

The strategies behind these pricing changes may indicate a broader competitive dynamic in motion. Cloud providers are not dumb, and as part of this “3-D chess,” other modifications are being considered. As I said, demand for cloud services will likely inflect upward given the exploding generative AI market. That demand would likely be there whether providers reduce egress fees or not. I don’t see a scenario where the cloud providers don’t come out on top—again. I do see that this could pave the way for a more flexible, transparent, and customer-friendly cloud computing landscape, at least I hope.

Copyright © 2024 IDG Communications, Inc.


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