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The Cloud Wave: An SMB Imperative

Risk 4: Technology Inflation Is a One-Way Street

Posted by: Tyler Bower

Heard of Moore’s Law? It’s a rule stemming from a 1965 forecast by Gordon Moore that predicts the number of transistors on a chip doubles every two years. The rule helped explain the trend we long witnessed, that as technology products get better and faster, their production costs go down. The rule held for decades, and as a result, technology products have generally had a “deflationary effect.” Well, move over Moore and make room for Murphy. Computer prices are bad now, and they’re likely to get worse.

Inflation is Risk #4 in our series highlighting five areas of your operation at risk if you maintain the status quo. How can cloud hosting help mitigate the effects of inflation?

The “I” word

Inflation surged 7.5% in January 2022, the single biggest increase since February 1982. Costs jumped across nearly all categories — including computer equipment, one sector that has historically been untouched by inflation. For decades we saw the prices of computers and consumer electronics trend down — way down. From December 1997 to August 2015, the Consumer Price Index for personal computers and peripheral equipment declined 96%. Low prices were largely fueled by gains in manufacturing efficiency and automation, lower offshore labor costs, and improvements in semiconductor design (remember Moore?).

My how things can change. The average selling prices of PC are up 10% compared to a year ago. Chip prices alone are up 25% — if you can get one. And the expectation is that prices may go up by another 20% in 2022.

Server prices are following the same trend. AMD, a semiconductor manufacturer specializing in high-performance server equipment, is raising prices on data center processors by 10% to 30%, with smaller customers seeing the largest increases. And backlogs are long and getting longer. Shortages of the components used in server production are expected to last through mid-2023 at least.

Seeing that chips are the lifeblood of modern society, many pundits predict that even if inflation rates decline, the days of inexpensive technology is gone. With virtually limitless demand, there’s little incentive to drop pricing even when production rates increase.

How cloud can help

Moving to a hosted cloud model means a business needs fewer (if any) servers. Sure, they’ll still need workstations and laptops, but the big, expensive, backordered servers are now someone else’s responsibility. It might sound too simplistic to simply say that when you buy less of something, you save money, but for cloud hosting, it’s mostly true. In most cloud hosting models, you no longer need to buy servers. Instead, you’re renting space on a big, powerful server, essentially sharing the cost of the resource with other like-minded businesses.

Cloud hosting provides another tangible, cost-saving benefit for growing companies — it’s enormously scalable. If a business outgrows its in-house server, it risks downtime, performance deterioration, and even lost revenue until it can buy, install, and configure a new, more powerful server. If the same business uses a hosted cloud provider, they simply pay for additional the resources they need. No downtime. No waiting.

It seems inevitable that technology inflation is a one-way street and costs will continue to rise. A move to cloud hosting can keep business flowing both ways, future-proofing your business by ensuring the technology you rely on is always on, always secure, and always at your service.

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