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Amazon Web Services
Amazon Web Services' Price Cuts Fuel Cloud Wars

By Seth Fitzgerald
March 26, 2014 3:07PM

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A report by RightScale, updated with Amazon's latest cuts for its cloud and compute services, shows Google still cheaper for on-demand use, but Amazon cheaper for "reserved instance" use, in which a company estimates and pays a subscription price for its predicted usage. Amazon announced a 51 percent cut for its S3 storage service.
 



The price war among cloud storage and compute providers is continuing, with Amazon Web Services announcing a 51 percent average price cut Wednesday on its S3 storage service. The cuts come one day after Google announced its own cuts.

Amazon also said it was making its desktop-as-a-service generally available, which could potentially raise the stakes for Microsoft's OneDrive and Office offerings in the cloud. And the Seattle-based Amazon said it was reducing prices on other services by a range of 28 percent to 61 percent, depending on the service.

The announcements were made at an AWS conference in San Francisco focused on the S3 service. The company also said its U.S.-based offerings had received a new security-level rating issued by the U.S. Department of Defense.

While Google started this latest price war, a new report from RightScale, which helps clients manage their cloud costs, found that Amazon dominated the industry with more than a dozen price reductions in 2013, which helped to push the company into its market leadership position. Cloud storage and compute providers have become a major part of the technology industry.

RightScale's report, updated with Amazon's latest cuts, shows Google still cheaper for on-demand use, but Amazon cheaper for "reserved instance" use, in which a company estimates and pays a subscription price for its predicted usage.

Setting Aside Forecasting

James Staten, principal analyst with industry research firm Forrester, notes in a recent blog post that forecasting is becoming more difficult and is not the optimal model to use. AWS and Microsoft require businesses to predict what their usage will be prior to discounts being applied to the total bill.

"Predictability is going down," Staten said in the blog post. "In the current Age of the Customer you have to change your Systems of Engagement faster, not slower. You have to do more analysis, more often, on larger sets of data to really understand customer behavior."

Google has effectively removed the need for businesses to predict usage each billing term as a result of its new sustained-use discounts. This pricing structure allows businesses to receive discounts automatically based upon how much they actually use rather than providing advance estimates, which are frequently inaccurate.

Price Wars

With the exception of a handful of features, all the major cloud providers offer similar services. This has resulted in some companies turning toward price as a way to differentiate themselves, but in the end, performance is what really matters on the enterprise level. Google generally has fewer options and features than Microsoft Azure or AWS, but when it comes to reliability those services are similar.

This means that making cloud storage and compute services easier to use and cheaper is what cloud providers will have to focus on this year. The latest price cuts by Google and AWS, combined with ones in December, have made enterprise-level compute services far cheaper. On top of that, Google's cloud storage has dropped in price to just $0.026 per gigabyte per month, compared with AWS at $0.03 after its price cuts Wednesday.

"Together we are resetting the price curve in the cloud to where it should be," said Google Senior Vice President Urs Holzle. "This is a philosophy. The price curve of virtual hardware should follow the price curve of real hardware."

As impressive as Google's prices now are, its market share has lagged behind AWS, which remains the most popular cloud provider among data-intensive businesses. Now that a price war is in effect, cost and feature advantages may seesaw throughout 2014.
 

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