Do cloud prices always come down?

This article first appeared on April 19, 2012.

We have noticed lately that the price of many cloud solutions has been on the decline, all to our benefit. The price of Office 365 was slashed 20% overnight by Microsoft in the US recently. We are seeing cloud storage and private cloud solutions dropping in price too. This is great for us in business as getting cheaper technology is always good.

However, if you are running a business that is dependent on cloud systems that determine your profit margins such as eBay and PayPal you need to look out.

With a letter such as the following [extracted from a letter to a client] they can change your costs from as low as 4% to 6% at will:

Simplified and transparent fees

From May 2, 2012, eBay is introducing some changes to fees on eBay.com.au which will provide sellers with a simpler, more transparent fee structure, making it easier for you to predict and calculate your eBay fees. As an Anchor Store subscriber you’ll be able to take advantage of:

Continued FREE insertion fees for fixed price listings*

FREE Supersize and Gallery Plus
– helping to make your listings more cost-effective and attractive to buyers

6.0% flat final value fee on all listings*
– making it easier to calculate fees

So only 2% – not a big deal right?

Well maybe it is a huge deal if you have set up a competitive online business importing products from China with no competitive edge. Without scale it is hard to get a supplier in China to give you a national exclusive on a product. So small businesses work on high volume and low margin for products from tools to coffee machines, toys and storage racks.

If you were working on a mark up of 20% to cover your costs of import, storage, admin and sales you just lost 10% of gross profit.

Clearly it is worth planning how you will mitigate the risks of cost variations in your cloud product line up just in case they do not always go down.

Of course, you could think of eBay as just another shopping mall. We all know that for years shop owners have been complaining about escalating rents in shopping centers. Yet for every store that closes there is a line of potential tenants who can’t wait to open a store to take advantage of passing trade.

So eBay changing fee structures or putting up prices is not a new concept it is just the increasing storefront cost playing out in cyber space.

The message here is not to bag eBay who are doing a great job of providing a service to shoppers and store holders alike. It is to remind us that a strategic approach to assessing current and future costs is always a good idea when tapping into technologies we have limited control of.

David Markus is the founder of Combo – the IT services company that ensures IT is never an impediment to growth.