Cloud Pricing Wars: Profiting From The Race To The Bottom

Cloud has been the poster child for aggressive price shifts in a cloud market worth $100-billion in 2014, according to Gartner. Cloud storage leader Amazon has been engaged in a race-to-the-bottom pricing war with the industry in general, and in particular, and now you can add , along with , which recently pledged $1.2 billion to boost its cloud storage services, to the list of competitors.

On Tuesday Google announced cloud service price cuts ranging from 32% to 85%, and which puts it officially in the market for computing resources delivered as services over the Internet, a space that dominates. In addition to volume discounts, the company is slashing pricing for its Compute Engine Infrastructure-as-a-Service by 32%, cutting storage pricing by around 68% for most users, and slashing BigQuery, Google’s cloud-based tool for doing SQL-like queries on large data sets, by 85%.

Forrester Research analyst James Staten was cautiously optimistic about Google’s new Sustained-use Discounts program, “which just might make it worth your consideration.” Both price and performance are fleeting differentiators in the cloud platform market, but there is “real pain around the management of the bill.”

Predictability is going down, so Google’s approach “returns that value to customers without the hassle of forecasting or predicting your forward cloud use. It’s a simple and highly compelling value – if you use more, you get a bigger discount, automatically. Hard not to like this value as you can now use more without worrying if you will be hit by the shock bill so many cloud pioneers have faced.” Staten calls Google’s other announcements either competitive catchup or to help bridge their PaaS and IaaS services.

By themselves, all of these moves will not change Google’s fortunes in the cloud platform market, said Staten. “Google still needs to expand the breadth of higher-level services it provides for developers and better linkages between the platform and the rest of the Google goodness. For that we’ll have to wait until summer and the Google I/O conference.”

Last year the four leading public cloud providers – , Rackspace, Google Compute Engine, and – rolled out 25 price reductions across compute, storage, and networking, up from 22 price reductions in 2012, according to RightScale. Based on the cloud provider pricing trends in 2012 and 2013, it predicted that the price wars will continue in areas that impact users the most.

A couple of Microsoft employees applied for a patent last summer on a cloud pricing scheme based on the customers’ ability to set the performance levels of a cloud service. Customers would be guaranteed the designated level of performance, based on the quoted price.

Earlier this month TwinStrata introduced a comparative price list for the leading cloud storage providers in the US. A more-detailed spreadsheet compares each of the services and their associated fees and SLAs.

An Israeli-based company, Cloudyn, offers tools that can help companies optimize their cloud deployments and reduce their cloud-related costs an average of 40%. Initially focused on Amazon, it added support for Google Compute Engine (GCE) earlier this year, enabling customers to determine which workloads would be best suited for which cloud service provider.

According to the company’s annual CloudynDex data findings, Google is an attractive option for 53% of its AWS customers, who are able to begin using GCE today. Cloudyn monitors more than 2,500,000 virtual instances for more than 1,200 customers, including F500 global enterprises and SaaS companies.

“When we opened up our beta program, our customer base exhibited strong interest, with 35% asking to participate,” stated Sharon Wagner, Cloudyn CEO, at the Google announcement. “Going forward, what we expect to unfold is akin to an “Expedia for the cloud,” where real brokerage empowerment is taking hold and the best deals are offered between sellers and buyers.”

Wagner recently told IT Trends & Analysis that Cloudyn monitors 7% of the AWS capacity globally, including thousands of databases and billions of storage objects every moment. The addition of Google significantly increases the value it can provide to cloud users. Cloudyn is giving customers the freedom to choose the right vendor and the best performance at the lowest cost, he said.

The race to the bottom for cloud pricing represents an interesting paradox, said Wagner. “When the cost per unit goes down, consumption goes up. That’s what cloud vendors are relying on.”

So far, and bearing in mind all the forecasts about future cloud growth, that seems to be the case. “What we see with our clients, is that as Amazon drops prices, they move more workloads into the cloud.”

Price isn’t the only issue, added Wagner. Customers are also looking around for better performance, and they tend to trust Google to offer comparable or better performance than Amazon. He said he is not hearing so much the same for Microsoft Azure, but IBM is starting to crop up in more conversations, mainly from enterprises that already have IBM products. “I believe IBM will provide good fight with Amazon and Google.”

Wagner also believes that Amazon, Google, IBM and Microsoft can leverage their own economies of scale during this price war, but it won’t go on forever. “At the end of the day everybody has to be profitable and will want to increase their profits.”

Author: Steve Wexler

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