How Tariffs Could Influence Cloud Infrastructure Costs for SMBs

By now, businesses have become painfully aware of the consequences the imposed tariffs will have on technology items for their SMB. Networking gear, computing devices, hardware, power and technology components made in China and other countries are subject to the new administration's tariffs. But these tariffs don’t just impact physical IT purchases, they also hit less obvious items such as cloud computing costs.  Let’s break down how the tariffs could influence cloud infrastructure costs for small and medium-sized businesses. 

Background on SMBs Reliance on Cloud Infrastructure 

Over the last few years, many SMBs have moved to a cloud infrastructure to reduce costs, allow for more flexibility and scalability, improve security and provide a safe off-site backup should a disaster occur. It has been a pragmatic choice for many businesses.  Unfortunately, while cloud infrastructure typically has a copious amount of benefits, the twist comes with these tariffs. Recent tariff hikes on servers from China and Taiwan, as well as other key components, mean cloud providers face higher expenses building and upgrading data centers. SMBs might feel this indirectly as providers adjust pricing. (Data Centers) 

Why Cloud Costs Could Rise

Let’s recall how the cloud works to help us understand why the cost of the cloud could rise with the implementation of the new tariffs.  The cloud runs continuously at data centers around the globe, and those centers require hardware that could significantly increase costs for cloud providers. Those costs will be passed along to customers. In a recent article published online by Data Center Dynamics, Micron, a leading global company specializing in memory and storage products, informed US customers that it will be imposing a surcharge on memory modules and SSDs (solid-state drives) starting April 9. CEO Sanjay Mehrota said of the move: "Where tariffs do have an impact, we intend to pass those costs along to our customers.” Smaller businesses are at a higher risk as they often use pay-as-you-go cloud plans that could be most susceptible to price changes. Larger companies are commonly locked into multi-year contracts, protecting them from price hikes. 

Strategies for SMBs to Manage Cloud Cost Uncertainty

Given that small businesses may be vulnerable to price hikes as semiconductors are added to the tariff list, let’s review some strategies for managing price uncertainties. 

Take Stock of Current Cloud Use 

Complete a cloud cost audit to determine if your business is overpaying for services, even without the tariffs. A managed service provider can help you identify the areas where you may be able to save or how to optimize your usage. Tightening belts now could help as the tariffs ramp up. 

Renegotiate Contract Terms

If at all possible, small and medium-sized businesses should attempt to renegotiate price protections at renewal time or try to secure a longer-term agreement with fixed rates to shield them from price hikes. 

Provider Diversity

Just like we discussed in our previous blog about buying tech equipment from a range of vendors, suppliers and distributors, it is a good idea to explore other providers for your cloud needs. Should one cloud provider raise prices due to the new tariffs, have other options such as those located in Europe or elsewhere, that can source hardware locally rather than rely on trade partners. 

Consider Hybrid Solutions 

While not always an option for all SMBs, investing in on-premises or edge computing may help as cloud costs skyrocket. This will allow small companies to choose the most effective venue for their needs rather than rely on one source for their cloud infrastructure. 

Key Takeaways 

While cloud computing remains an ideal option for businesses due to its exceptional scalability, flexibility, and relatively low upfront costs, it is not immune to the turmoil of the current trade war. As the current tariff situation is extremely fluid, it is essential to stay on top of changes. Please review your cloud contracts to see if there are any methods to reduce usage, extend terms, or renegotiate price lock-ins. Explore other suppliers from countries that are not impacted by the tariffs to avoid surprises should the exemptions shift in the coming months. Finally, don’t panic. Work with your managed service provider to develop a solution tailored to your specific needs.  Contact us at Spectra Networks, as we are here to help your small business navigate this tumultuous time.