The economics of hosting: Why prices are rising despite technological advances

Things were meant to get cheaper as tech advanced – so why is your hosting bill skyrocketing?

When Tim Berners-Lee launched the first website in 1991, the rule of thumb was simple: hardware gets cheaper, and so does hosting. That logic just broke. In October 2023, the US Producer Price Index for “data processing, hosting and related services”, of which cloud prices are a key component, were up 3.2 % year-over-year, the steepest jump on record.

That was just the beginning. The index reached a record high of 118.5 in January 2025 – with the rate indexed to December 2006. It has since come down slightly, but only barely. It’s undeniable that there’s an ongoing trend of rising cloud service costs, which have become a significant factor in IT spending and inflation within the sector.

If you thought the US had it bad, spare a thought for Europe, which felt the pain first.

The Ukraine war sent electricity prices soaring; a July 2022 study found UK and Irish data-centre power bills shot up as much as 50% over three years. Small providers quickly passed the shock on: Manchester-based M247 raised rates 161%, and French giant OVHcloud, plus German rival Hetzner, announced 10% surcharges.

Trickle-down economics

In April 2023, the hyperscalers followed. Microsoft bumped all European Azure and Microsoft 365 list prices by between 9% and 15% to “align” with the US dollar.

Google took a finer scalpel but cut just as deep: multi-region Nearline storage leapt from $0.010 to $0.015 per GB – a 50% leap overnight. AWS avoided a headline-rate rise, but still cut long-standing discounts and added energy levies, achieving the same outcome.

Providers insist costs forced their hand: power is pricey, chip shortages drive server prices higher, and AI workloads demand power-hungry GPUs. But analyst reports show server component costs drifting down even as service fees climb, suggesting efficiency gains are no longer shared with customers.

Critics say the real enabler is market power. “A business model where a company can increase prices almost at will? That’s the cloud,” wrote columnist Gene Marks, pointing out switching is often too costly for smaller firms once data and integrations are embedded.

The UK’s Competition & Markets Authority agrees. Its provisional findings, released in January 2025, accuse Amazon and Microsoft of using egress fees and technical barriers to stifle competition, likely inflating prices in a £9 billion market.

Costs spreading downstream

The tidal wave of charges doesn’t stop at infrastructure. A Vertice purchasing analysis of 16,000 vendors found nearly three-quarters of SaaS suppliers raised prices in 2023, with the average price surge of 12%. The increase is far above consumer inflation and compounds costs for every business running on the public cloud.

CIOs are feeling it. A Civo-commissioned survey published last year found 60% of organisations saw cloud spend rise last year, and 38% of those saw their costs jump by more than a quarter.

Many blame opaque pricing: bandwidth “egress” tolls, region-to-region transfer fees, and license tweaks that appear only after the bill arrives.

But there could be light at the end of the tunnel. Tech innovation continues apace. If power prices ease and more-efficient ARM-based servers reach scale, providers could share savings again. Regulators may clamp down first: the CMA will deliver its final cloud-market verdict by August 2025, and the US Federal Trade Commission is running parallel probes. If they cap egress fees or mandate interoperability, the competitive pressure the market has been missing could re-emerge.

For now, the confusion still exists: hardware keeps getting better, yet the cost of simply “keeping a byte online” keeps rising. So, unless regulators succeed or new entrants undercut incumbents, expect hosting invoices to keep defying Moore’s Law with every invoice they send.