February 27, 2015

US Dollars are a Threat to your Cloud Storage Margins

At the time of writing, the Aussie dollar is buying 0.78 US dollars.

Australian IT companies who have chosen to sell Cloud Storage from American providers (where the denominations on the invoices are in USD) are at the mercy of the exchange rate.  In an industry where 'dumb storage' is now purely a commodity, margins are already lean, and a weakening local currency is making it even harder for resellers to turn a profit when the supplier demands US dollars.

War stories are emerging from the IT channel about end users who demand the lowest price for their cloud storage, and resellers are acquiescing those requests with less than 5 cents of margin per GB consumed. For every cent the Aussie dollar slides, those margins get thinner. These are extreme examples of being vulnerable to exchange rate volatility, but they have far-reaching consequences. It's hard to approach a customer and increase the rate (without adding value) for a commodity.

If any work needs to be done on the data being stored (perhaps a large file transfer, or a recovery) it is possible that additional fees will be incurred. Is there a bank in the middle charging a conversion fee? You can see where this is going.

The fact of the matter is this: Resellers are being left with red ink on their balance sheets as a result of poor product choice, poor commercial planning and perhaps a lack of understanding on the customers behalf as to what they're paying for.

Australian IT companies are turning to Probax as a way to turn the backup component of their business from a commodity, to a value-based proposition in order to secure predictable, long term margins, and increase customer retention.