What will increase in price after computers and servers? Cloud services. Starting with Hetzner and Oracle

The race for artificial intelligence has led to a staggering increase in prices for a vast array of goods, from smartphones to servers. While so far these increases have largely been confined to physical products, it seems that services are now being affected as well, with early signs visible in two examples: the significant price hikes imposed by Hetzner, as well as the cuts made by Oracle in the Always Free tier of Oracle Cloud.

Hetzner Increases Prices, Oracle Cuts Free Services

Investments in data centers for AI are among the most significant in the history of technology. The distorting effect they are having on the hardware component market is leading to a complete market shift, but it seems that other effects are on the way in the form of cuts or price increases for services.

Hetzner is one of the most well-known European operators in the hosting field and is famous for the very low prices of its services, to the point that the company uses the slogan "truly thrifty hosting." However, there has been a recent change that puts Hetzner in a different market tier than usual: the company has announced increases ranging from 30% to even 173%. For example, a virtual machine that cost €4.49 before June 15 now costs €5.99 (+33%), while one that cost €31.49 now costs €85.99 (+173%). The company has not communicated the reason for these increases, but it is reasonable to assume they are linked to the skyrocketing costs of hardware components.

Hetzner is not the only one to have adjusted its pricing and the services available to customers. Oracle has always offered, as part of Oracle Cloud, access to free resources: 4 Ampere Altra CPU cores, 24 GB of RAM, and 200 GB of disk space. This is a very generous offer, allowing for the management of even complex applications. As of June 15, the company has halved this offer to 2 CPU cores and 12 GB of RAM; while it still remains a generous amount of resources, various users have reported on Reddit that Oracle did not send out notices on the change, merely noting it in the documentation and billing those who did not reduce their usage on time for resources beyond the new limit.

It should be emphasized that this is a free service that Oracle offers, and as the saying goes, "don’t look a gift horse in the mouth." At the same time, however, it is significant that the company chose this particularly difficult moment in the market (and in light of unfavorable stock results) to revise its offering.

Hetzner and Oracle are not the only companies announcing price increases. AWS has raised the prices of some instances using GPUs by 20%, while OVHcloud has communicated increases between 5% and 10% until September.

Towards a New Inflationary Growth?

Looking at the SaaS world, the average increases are 12.2%, over five times the average inflation rate of Western economies. In the SaaS world, the phenomenon of the so-called "shrinkflation" is also present, which refers to the reduction of offerings at the same price, effectively corresponding to price increases.

Generalized price increases also seem to be emerging in the services world, with potential broader implications if the phenomenon takes on larger characteristics. If, indeed, the prices of widely used services were to increase significantly, it is possible that companies would want to recoup these increases by raising their own prices, which would create a new wave of inflationary phenomena. At this point, it is difficult to say if this will occur, but all signs seem to be pointing in that direction. We would thus find ourselves in the paradoxical situation where AI simultaneously generates an increase in productivity (and thus an increase in wealth) and an inflationary wave (which effectively cancels out that increase). The market trends in the coming months will help determine what will happen and whether we will witness the beginning of a new wave of inflation or if there will be a stabilization.