Cloud storage prices: Avoid turning your MSP business into a commodity

Managed services providers face a lot of pressure to cut cloud storage prices, but doing so may turn their business into a commodity and devalue their services.

It seems like managed service providers (MSPs) offering cloud storage services are fighting a losing battle. Not

because cloud-based data backup, storage and disaster recovery services are unimportant to customers, but rather due to the way MSPs are setting setting cloud storage prices. Their pricing strategy is commodity-driven and, thus, self-defeating.

This issue isn't unique to storage MSPs. Across the market as a whole, MSPs have tended to compete on price, undercutting each other's rates and subsequently devaluing the worth of their services to customers. 

Charles Weaver, MSPAlliance
Charles Weaver, MSPAlliance

Commodity pricing is like dancing -- it takes two to tango. That is, if one MSP drops its price, it's likely a competitor will feel compelled to also offer discounts to effectively compete for customers.

This pricing strategy has, unfortunately, become rampant within the storage community and has ravaged many MSPs that have fallen prey to the belief that they must constantly cut prices to stay afloat. Meanwhile, providers say they have found it increasingly difficult to communicate their value to customers, but this behavior is completely self-inflicted and unnecessary.

Cloud storage pricing wars: 'Extraordinarily dangerous'

This pressure to reduce cloud storage prices can be traced back to the prevailing and false perception of storage, which is that it's a commodity. Utility metering and usage-based pricing models further perpetuate this myth and often pressure MSP executives to view cloud storage prices as one of the first things that can and should be sacrificed in order to remain relevant to the customer.

This way of thinking is extraordinarily dangerous, not only because it drives down cloud storage prices, but because it marginalizes the importance of data storage, archiving and disaster recovery in the eyes of the customer. This is an alarming trend simply because managing data and storage solutions is arguably the most important role MSPs can play for their customers.

[Cloud storage providers'] pricing strategy is commodity-driven and, thus, self-defeating.

Storage MSPs are sitting on an incredible opportunity that is not only critical to the ongoing success of managed services, but also to the health and stability of customers everywhere. There is no benefit to undercutting cloud storage prices at a time when the importance of data integrity and availability is increasing.

The future viability of storage MSPs is promising, but the choices they make regarding cloud storage prices and the perceived value those prices convey will ultimately decide their success.

Data integrity and security mean everything to customers, so storage MSPs owe it to themselves to hold their services in similarly high esteem. Lowering cloud storage prices because other service providers do is the fastest way to become a commodity.

About the author: Charles Weaver is the CEO and cofounder of the International Association of Cloud and Managed Service Providers, also known as the MSPAlliance. Since its founding in 2000, the MSPAlliance has grown from less than five founding members to more than 14,000 members worldwide. Under Weaver's management, the MSPAlliance has expanded its reach and influence to issues around education, standards of conduct and certifications for managed services professionals and companies.

In addition to running the daily operational activities of the MSPAlliance, Weaver writes and speaks extensively around the world on the managed services industry. He is the author of the book The Art of Managed Services.

This was first published in June 2012

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