The won-dollar exchange rate is maintaining the 1,400 won range, increasing the burden on domestic corporations utilizing foreign cloud services. This is because, due to the nature of overseas cloud companies requiring subscription fees to be paid in dollars, the payment amounts converted into won are increasing.
According to the industry on the 24th, the cloud subscription fees for Amazon Web Services (AWS) rose by about 6% this month compared to October. AWS bases its won payment amount on the ‘Bank of Korea's most recent foreign exchange selling rate as of the end of the previous month’ and charges its client corporations accordingly. The subscription fees for AWS in January next year will be determined based on the won-dollar exchange rate on the 31st. If the won-dollar exchange rate remains above 1,450 won until the 31st, an additional increase of about 4% in subscription fees will be inevitable. As of the 23rd, the won-dollar exchange rate was 1,450.9 won.
Google is also reported to determine domestic cloud subscription fees based on the exchange rate announced at the beginning of each month, similar to AWS. In contrast, Microsoft (MS) sets its subscription fees based on the won-dollar exchange rates for February and September. If the won-dollar exchange rate continues to stay in the 1,400 won range until February next year, it is expected that subscription fees will rise by more than 10%.
The domestic cloud market is dominated by three global companies—AWS, MS, and Google—accounting for about 75% of the market, indicating that the burden on domestic corporations utilizing services from these companies is likely to increase. According to the Ministry of Science and ICT, the size of the domestic cloud market reached 5.84 trillion won in 2022. Assuming a 10% increase in cloud subscription fees due to exchange rates, this translates to an increase of about 438 billion won in cloud expense. According to the results of the 2023 domestic value-added telecommunications business status survey (multiple responses allowed) announced by the Ministry of Science and ICT in July, 60.2% of the 171 corporations using cloud services said they use AWS, followed by MS (24.0%), NAVER Cloud (20.5%), Google (19.9%), and KT (8.2%).
Industry consensus suggests that despite rising subscription fees for foreign cloud companies, the significant gap in technology and service competitiveness compared to domestic cloud companies limits the likelihood of clients switching. Chae Hyo-geun, vice president of the Korea IT Service Industry Association, noted, “Companies like AWS and MS have made significant investments, resulting in high technical capabilities and well-established service systems, while domestic cloud companies lack competitiveness,” adding, “Even if expenses rise due to exchange rates, domestic corporations have no choice but to use foreign cloud services, which is quite frustrating.” He further stated, “Domestic corporations, such as LG Group, heavily rely on overseas cloud companies for their operational systems,” and emphasized that “the primary reason for choosing foreign cloud services was not initially based on price advantages.”
Even if domestic corporations want to switch cloud services, the burden of expenses related to system transitions is a significant barrier. According to a survey conducted by the Fair Trade Commission in 2022, 76.7% of over 3,000 companies surveyed cited ‘the cost burden of data transfer and technical constraints’ as the main reason for difficulty in switching to another company's cloud service. A cloud industry insider explained, “When changing cloud providers, there are cost issues related to retraining existing cloud management personnel to fit the new system or hiring new personnel with specialized knowledge.”
The fact that native cloud companies have not secured many data centers abroad is also cited as a reason why client corporations have no choice but to maintain their use of foreign cloud services. For example, in the case of industries like gaming, where overseas services are crucial, companies must continue to use foreign cloud services even if they are expensive. NAVER has secured a total of nine data centers overseas, while KT has not secured any.