In the three years to 2017, the price of IT hosting services has been rising at an estimated annualized rate of 1.2% to reach $4,007 per month. Rising demand has spurred price growth, while low price volatility and significant competition within the market limit the extent to which suppliers have raised prices.
In the three years to 2017, private investment in computers and software, the number of mobile internet connections and the percentage of services conducted online have all been growing quickly, bringing higher demand for cloud storage services. Robust demand growth has primarily been attributed to the rapid adoption of cloud computing in business operations, which has increased productivity and helped companies maintain a competitive edge. Furthermore, although small in-house IT departments were once able to effectively manage enterprise networks, IT departments have been finding it increasingly difficult to keep pace with rapidly expanding networks and changing IT needs. Therefore, businesses have been increasingly outsourcing hosting to companies with more robust IT resources, stimulating demand and price growth for market services.
Meanwhile, despite high market share concentration, top suppliers compete fiercely to retain market share. Because buyers are not limited in their supplier choice based on geographic barriers, large suppliers typically compete by offering attractive rates. Thus, competitive pricing has slowed the growth of service prices substantially. Significant competition also occurs among smaller suppliers in the market because the large number of vendors and moderate barriers to entry have allowed the number of IT hosting suppliers to swell even more. Consequently, buyers benefit from intense competition because it mitigates price growth and incentivizes suppliers to offer attractive rates.
Price volatility in the IT hosting services market has been low during the past three years, primarily due to minimal fluctuations among the market’s major price drivers. Buyers benefit from low price volatility because it makes budgeting for IT hosting services easier. Low price volatility indicates a low risk of price spikes, which preserves buyer power. Although prices have been rising, low price volatility encourages buyers to take their time selecting a provider to avoid incurring a higher total cost of ownership or switching costs.
IT hosting service prices are projected to continue rising at an average annual rate of 1.4% in the three years to 2020. Continued growth in demand for cloud computing services will be the primary driver of this market’s price growth. However, a considerable level of competition in the market is anticipated to mitigate this growth.
Demand for hosting services is projected to continue strengthening as companies consider alternatives to expensive in-house IT staff and try to keep up with technology trends, such as cloud-based software services and the adoption of personal devices in the workplace. Private investment in computers and software is anticipated to increase as companies become more reliant on new hardware and software offerings. Furthermore, the number of mobile internet connections is anticipated to increase as more people gain access to smartphones and other mobile devices. In addition, the percentage of services conducted online is forecast to grow as companies expand their online presence in order to promote their products and services. This rising demand for cloud storage services is projected to contribute to further increases in IT hosting service prices during the period, detracting slightly from buyer power.
Nonetheless, significant competition in the market will continue preventing service prices from rising at a faster rate. The number of suppliers is forecast to swell during the next three years, especially as the growing trend of hyperconvergence will allow suppliers to provide services with fewer ongoing costs. Continued competition among vendors will also benefit buyers by keeping price volatility low in the three years to 2020 because no supplier can raise their prices significantly without losing business to one of their competitors. Low price volatility benefits buyers by making it easier for buyers to budget for their future IT hosting expenses and allowing them to take their time selecting the most suitable vendor.