RAM shortages are reshaping private cloud pricing: what enterprises need to know
Private cloud pricing is entering a new phase of volatility. Emerging shortages in Random-access Memory (RAM) and certain enterprise storage components are likely to trigger a new wave of pricing changes across private cloud infrastructure deals.
Everest Group’s experience across client engagements shows that most private cloud contracts are structured using one of two primary pricing models.
- Virtual Machines (VM) t-shirt-based pricing: Predefined virtual machine configurations (for example, small, medium, large) are priced per instance. These VM prices typically bundle compute resources, Virtual Central Processing Unit (vCPU), Virtual Random-access Memory (vRAM), and storage, along with certain operational components such as Operating System (OS) management and platform services
- Granular infrastructure pricing: Individual price points are assigned to vCPU, vRAM, and storage, allowing customers to design custom VM configurations
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Key drivers of pricing volatility in private cloud
The current RAM supply constraints directly affect the hardware components underpinning compute capacity. Physical server memory is one of the key drivers of compute infrastructure cost. Industry discussions indicate that the cost of compute infrastructure components has increased significantly in recent months. Hardware pricing in the compute layer has increased by approximately 1.6x to 2.2x compared to previous levels.
However, private cloud pricing does not increase in direct proportion to hardware cost inflation because infrastructure deals typically bundle multiple components, including hosting, networking, operating system licensing, and managed services. As a result, while hardware costs may increase significantly, the resulting price increase at the service level is typically lower.
Changes to expect in pricing
Based on Everest Group’s estimates, vRAM-based pricing could increase by approximately 60- 90% in upcoming private cloud deals as providers pass through higher hardware procurement costs.
In contrast, VM t-shirt-based pricing is likely to increase by a relatively lower 30-50%. The difference is largely because VM-based pricing bundles infrastructure with operational services such as OS management and platform operations, whose cost structures remain largely unaffected by component shortages.
How providers and enterprises are responding
The current supply-demand imbalance is expected to persist in the near term. Market signals suggest that RAM and flash component shortages are likely to continue for the next 12-18 months, as semiconductor manufacturers expand production capacity.
As a result, infrastructure providers are already discussing mitigation approaches with customers, including:
- Delaying hardware refresh cycles to extend asset life
- Increasing infrastructure utilization thresholds in virtualized environments
- Using memory over-provisioning techniques
- Temporarily shifting low criticality workloads to public cloud environments
In parallel, providers are also introducing greater pricing transparency in ongoing deal cycles. Given the rapid movement in hardware costs and the shortened validity of Original Equipment Manufacturer (OEM) price quotes, providers are increasingly incorporating contractual clauses that allow price adjustments if underlying infrastructure component costs change during the deal cycle.
Despite these mitigation measures, a price change of this quantum has the potential to significantly disrupt enterprise buying behavior. Providers must carefully recalibrate their pricing strategies as failure to reflect rising costs could result in margin erosion in new and renewed deals.
If you enjoyed this blog, check out, Rethinking the cloud: Engineering the edge-to-cloud continuum for the age of intelligence – Everest Group Research Portal, which delves deeper into another topic relating to cloud.
If you want to help in unraveling your private cloud pricing in this environment of uncertainty, contact Saikat Roy ([email protected]) and Ricky Sundrani ([email protected]).