In recent months, the three major players in the cloud market – Amazon, Microsoft, and Google – have loosened their grip on egress fees, a form of tax that customers must pay when transferring their data to a different cloud provider. While this practice may have initially served to retain existing customers, it is ultimately a clumsy effort that does little to foster goodwill.
However, as market dynamics shift due to factors such as the rise of multi-cloud environments, stricter regulations, and customer backlash, these companies are starting to realize the error of their ways. They are beginning to ease the burden of egress fees, although with several caveats and some friction. For instance, there are restrictions on the types of data that can be transferred, and customers must submit a request and contact the vendor in order to retrieve their data. Despite these limitations, it is still a step in the right direction.
This change in perspective is a clear indication of evolving market forces, according to John Dinsdale, the chief analyst and managing director at Synergy Research, a firm that tracks the cloud infrastructure market. He states, “I believe this is a natural progression in the industry. With intense competition, it is not beneficial for cloud providers to appear overly protective.” He adds, “Providing customers with what they want is simply good business strategy. In the IT world, companies that cling to outdated methods have not fared well in recent years.”
The importance of removing barriers to data transfer is becoming increasingly evident in today’s multi-cloud landscape. Jake Graham, CEO and co-founder of Bobsled, a startup that assists customers with cloud data migration, is on the front lines of this issue. He explains, “In the past, the major cloud providers competed to create walled gardens, where everything ran smoothly as long as it was built on their platform. However, transferring data across these platforms was a daunting task.” But, as enterprises rely more heavily on multiple cloud platforms, customers are pushing back against egress fees, citing the need to share data with partners and even within different divisions of the same company.
Rudina Seseri, founder and managing partner of Glasswing Ventures, points out that while regulatory pressure is a major underlying motivator for these changes, it is not the only reason. She remarks, “The sudden shift in behavior can simply be attributed to the emergence of regulations. However, it is worth noting the optics of proactively making such amendments and how Google has used it as a marketing tactic to differentiate itself from Azure. If these companies see the elimination of egress fees as inevitable, then Google certainly has an advantage in painting itself as the ‘less restrictive’ cloud and attracting early-stage customers.”
She continues, “Metaphorically, market dynamics are moving away from punishment and towards reward. As cloud customers consider switching providers, they will now need to be enticed with innovative features and improved accessibility, as opposed to being coerced by egress fees.”
David Linthicum, a veteran cloud consultant, acknowledges that these recent announcements have a positive public relations aspect, but warns customers to review their bills carefully because egress fees are not the only cost to consider. He emphasizes, “This is a pleasant surprise, but it may not be significant. Customers must evaluate costs holistically. What are we paying for the services we use? What about networking fees, egress fees, and other hidden fees also known as ‘junk fees’?”
Still, this change may not have as much impact on startups as it does on larger enterprises. Seseri explains, “There are many moving parts in a cloud ecosystem, such as scaling and security services, and the biggest companies have built complex infrastructures that are difficult to unwind.” She adds, “While the experience for startups will certainly improve as providers are forced to prioritize innovative features and customer satisfaction, these changes will have a greater impact for larger enterprises.”
Graham, whose business involves helping customers move data, highlights the significance of these fees on his entire business model. He sees the recent changes as a small but important step, but envisions a future where it will be increasingly difficult to differentiate between egress fees and other costs, potentially resulting in the complete elimination of these fees.
He offers insight, “Migrations take time. It is not a simple switch from one cloud provider to another. It is a lengthy process spanning years, during which data sources must be operational on both clouds. At the same time, the original cloud provider is working hard to win back the customer, creating an impossible balancing act for these companies.”
Graham concludes, “We will continue to see this tug of war between the team focused on regaining customers and keeping them satisfied, and the team insisting on charging full fees because the customer has already left. The value of data is only increasing in the age of AI, and the ability to transfer and utilize data is becoming crucial for all businesses. Cloud providers who proactively remove barriers to data transfer, as opposed to creating obstacles, will have a competitive advantage in the long run. This is hopefully just the beginning of bigger changes to come.”
