Why hasn’t cheaper hardware lowered cloud prices?

Public cloud providers have established themselves as the primary lifeline for modern enterprise IT, delivering unprecedented scalability, operational efficiency, and innovation. Despite all the advancements they’ve ushered in, businesses are noticing a disparity that’s hard to ignore: Why are public cloud prices holding firm—or even increasing—while hardware costs have plummeted?

As an analyst who closely follows this industry, I believe the answer lies at the intersection of economics, business priorities, and infrastructure complexities. Public cloud providers operate on the promise of seemingly infinite scalability, yet they are businesses beholden to investors and shareholders as well as customers. Their billion-dollar infrastructure investments, shareholder expectations for consistent returns, and high operational costs contribute to a rigid pricing structure—a reality many enterprises now grapple with.

Keep in mind that I don’t work for a cloud provider. I’m offering some educated guesses based on anecdotal data, observed trends, and logical conclusions. With that in mind, I’ll explore why major cloud providers haven’t passed on savings from declining hardware costs and what that means for businesses. More importantly, how can enterprises navigate this landscape? I recommend considering alternatives to the hyperscalers, from managed service providers to private clouds. The public cloud’s unchecked expansion may face serious headwinds as organizations reprioritize cost efficiency.

Reasons for high cloud prices

During the past 15 years, public cloud providers have made massive investments in building and maintaining their global infrastructure. Billions of dollars have gone into the construction of state-of-the-art data centers and global private networks and to fund R&D for advanced cloud services.

These expenditures are not one-time costs. Hyperscalers must continuously invest to keep up with demand, roll out new services, and navigate regulatory challenges. Understandably, investors expect strong and consistent returns on these investments. In fact, public cloud providers are not incentivized to dramatically lower costs; doing so could adversely affect margins and shareholder confidence.

This may explain why cloud pricing remains steady even as hardware costs (servers, storage, networking equipment) fall. The hyperscalers’ priority appears to be sustaining a long-term business model rather than passing on immediate cost savings to customers. In addition, the operational demands associated with running hyperscale cloud environments remain significant. Public cloud providers face ongoing expenses, including:

Power and cooling for massive data centers

Maintenance costs for a global, distributed infrastructure

Compliance with sustainability and carbon-neutrality initiatives

Cybersecurity defenses in a constantly shifting threat landscape

The sheer scale of these providers’ operations adds layers of complexity. Providers must design for hyper-redundancy, manage geographically dispersed data centers, and guarantee uptime and service levels. These factors likely contribute to their reluctance to lower prices.

Public cloud providers justify their premium pricing by pointing to the wide array of features they offer. Beyond compute, storage, and networking, these platforms provide managed databases, machine learning tools, internet of things capabilities, edge services, global user access, and more.

This value-added approach positions public clouds as more than just infrastructure providers—they are integral enablers of modern enterprise innovation. However, premium pricing may become increasingly unjustifiable for businesses that do not require this full spectrum of services or for companies that can find functional alternatives.

Public cloud alternatives are increasingly attractive

Enterprises must recognize that public cloud providers ultimately operate as businesses driven by profitability and shareholder returns. This is not inherently bad, but it does suggest businesses should evaluate their IT infrastructure strategies with a broader perspective. The alternatives are becoming more accessible and affordable, increasingly attractive for organizations seeking cost-efficient solutions.

One such option is the use of managed service providers. These providers deliver infrastructure scalability and customizable services combined with tailored support. They are often a cost-effective choice for businesses that have specialized requirements but don’t want the premium price tag of hyperscalers.

Another alternative is colocation facilities, which allow organizations to deploy and maintain their own hardware within state-of-the-art shared facilities. Businesses retain hardware ownership while managing long-term costs. Similarly, sovereign or regional cloud providers cater to enterprises with intense compliance and regulatory requirements. These providers focus on localized storage and regulations, services that benefit industries such as healthcare and finance, often at a cost considerably lower than hyperscalers.

Private cloud solutions are a viable option for enterprises with predictable, high-volume workloads. By owning and managing their own infrastructure, organizations can bypass recurring fees while exercising full control over resources and security. Additionally, hybrid cloud architectures offer an appealing balance, utilizing public clouds for burstable workloads and private or alternative infrastructure for baseline operations. A hybrid strategy enables both flexibility and cost optimization, ensuring businesses get the value of public clouds without being entirely reliant on them.

Enterprises that assess these alternatives could mitigate rising costs in the cloud and find solutions better aligned with their goals. By carefully analyzing workloads, scalability demands, and compliance requirements, organizations can identify IT infrastructure that delivers greater ROI while maintaining operational efficiency.

A cautious outlook for public cloud adoption

Based on anecdotal data and observed trends, I would argue that persistent high pricing in the public cloud will continue to drive organizations to rethink their infrastructure strategies. Some enterprises will always require the scalability and redundancy of hyperscalers, but others may reconsider the economics, especially when compared to alternative solutions.

If these pricing trends continue, it’s possible we’ll see a reduction in new enterprise cloud spending or a stronger focus on hybrid and multicloud environments. The discrepancy between public cloud pricing and the falling cost of hardware could ultimately serve as a wake-up call for enterprises to diversify their IT spending.

Although I don’t have a crystal ball, it’s pretty clear that high public cloud prices are here to stay—at least for the foreseeable future. Enterprises should carefully evaluate their workloads, cost structures, and long-term IT strategies. MSPs, colocation services, and private clouds deserve a second look if costs in the public cloud seem prohibitive.