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The market is forcing cloud vendors to relax data egress fees

In recent months, the big three cloud vendors — Amazon, Microsoft and Google — have relaxed their egress fees, which are a tax of sorts that the cloud companies charge customers to move their data to another vendor. It’s a way to keep existing customers in the fold, but it’s kind of a ham-handed way to do it, and doesn’t exactly foster goodwill.

As a number of factors come into play, like the reality of a multi-cloud world, a stricter regulatory environment and consumer backlash, these companies are beginning to see the error in their ways by easing these fees, albeit with lots of caveats and a bit of friction involved. For example, there are limits to the kind of data you can move, and each requires you to contact the vendor and open a request to get your own data out of the cloud. But it’s a start at least.

This change of heart is really an acknowledgement of changing market dynamics, says John Dinsdale, chief analyst and managing director at Synergy Research, a firm that tracks the cloud infrastructure market. “I think this is a natural progression of the market. As true competition heats up, it would do cloud providers no good to be seen as being overly protectionist,” Dinsdale told TechCrunch.

“Giving customers what they want is just the right business strategy. In the IT world of the last few years, legacy companies that have tried to hang on to the old ways of doing things have not done well,” he said.

It’s also clear that we are moving into a multi-cloud world where it’s more important than ever to remove friction around moving data, says Jake Graham, CEO and co-founder at Bobsled, a startup that helps customers move data between clouds. His role puts him on the front lines of this issue.

“In the original cloud world, the three major cloud vendors were really fighting to try to build what felt like walled gardens, and as long as you built on top of them, everything was great. But going across them was really challenging,” Graham said. “They’re starting to get significant pushback from their enterprise customers, who are saying that there is no world in which a global enterprise is not using multiple platforms.” He says that charging these fees is putting up a significant barrier to moving data, making it difficult to share with customers, and even within divisions inside the same company.

Rudina Seseri, founder and managing partner at Glasswing Ventures, says the shift is partly due to regulatory pressure, but that isn’t the only reason. “At a high level, this emergence of regulation is a pretty simple explanation for the sudden change in behavior,” she said. “However, I think it is also worth pointing out the optics of preemptively making such a language switch, and how Google has used it as a marketing tool against Azure. If these companies see the demise of egress fees as an inevitability, then Google certainly has first-mover advantage towards painting itself as the ‘less restrictive’ cloud and attracting early-stage customers,” she said.

“Metaphorically, the market dynamic is moving away from the stick and back towards the carrot. Cloud customers looking to switch providers will need to be retained through innovative and accessible features now that the punishment of egress fees is being phased out,” Seseri said.

David Linthicum, a longtime cloud consultant, says that while these recent announcements are a pleasant PR move, he warns folks to review their bills carefully because egress fees aren’t the only problem. “This is a nice surprise, but it’s not necessarily consequential. Customers have to consider the costs holistically,” Linthicum told TechCrunch. “In other words, what are we paying for the services we’re leveraging? What are we paying for the networking fees, the egress fees, all the other hidden fees that come along with what people call junk fees that come from the cloud vendors?”

But this may not affect startups as much as larger enterprise customers. “There are more moving parts in a cloud ecosystem than just storage, such as services required for scaling and security, and the largest companies have built tight infrastructures that can be onerous to unwind,” Seseri said. “The experience of startups, however, will certainly improve as providers now must lean further into innovative features and improved customer satisfaction to win long-term loyalty.”

Graham, whose primary business is helping move data, sees his whole business model affected by these fees. He says the recent changes are a small but important step, but he also sees a future where it’s increasingly difficult to determine what is an egress fee and what’s not, which could lead to the ultimate demise of these fees.

That’s because migrations take a long time. It’s not a clean break like, “I was in AWS and now I’m GCP.” It’s a lengthy process over years where data sources that need to communicate are in both clouds for a period of time. At the same time, he says the original cloud vendor is working hard to get the customer to change their minds and come back, and it’s an impossible balancing act for these companies.

“You’re just going to have this battle between the team that is associated with winning back the customer, trying to make the customer happy, and another group that says, wait a second, we already lost this customer. We should be charging them everything. Why are we giving them favorable treatment?”

As data becomes increasingly valuable in the age of AI, being able to move data and put it to work is growing in importance for everyone. Cloud vendors are going to be a lot better off getting in front of this trend instead of throwing up roadblocks to make it more difficult to move data around. Perhaps this is just the start of something much bigger.

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