Is Amazon Web Services raking in profit, although it's been proclaiming it has low margins? A smaller Infrastructure-as-a-Service company is cutting its prices in half, and claims that the prices for Amazon and other cloud
giants are not rock bottom.
Cloud computing company ProfitBricks co-founder Andreas Gauger said in a posting on its blog Thursday that "if you listen to the headlines, we're in the midst of a major cloud price war." He added that customers are told "that the big players, Amazon, Microsoft and RackSpace, are fighting a race to the bottom," with the key question being "how much cheaper can cloud pricing go?"
But, ProfitBricks says, it's "shadowboxing among giants." Gauger notes that Amazon Vice President Andy Jassy has said his business is not a high-margin one, with gross margins between 60 percent and 80 percent, and that the technology heavyweight has talked about its "razor thin margins."
Cutting in Half
Gauger wrote that ProfitBricks' pricing takes into consideration the fact that the cost of hardware is declining, even though, as a smaller company, "I am pretty sure that the prices we pay for hardware, data center space or energy are higher than Amazon and the other big players." He added that if his services were sold at the same prices as Amazon and RackSpace, his company would have gross margins "far higher than the quoted 60 to 80 percent."
Gauger said that, to back up his claim, ProfitBricks is now cutting its 1-year-old pricing on cores and RAM for all its customers by 50 percent, regardless of whether they are current customers or new ones. This means, for instance, that one core, 3.75 GB of RAM and 250 GB of EBS storage on Amazon EC2, which ProfitBricks quotes as $111.40 monthly, will instead cost $61.65 per month on ProfitBricks.
In terms of its technology, one of the ways that ProfitBricks has sought to distinguish itself is through the use of the faster InfiniBand technology instead of Ethernet, and all hardware at its facilities is equipped with dual InfiniBand network interface cards. The company has said it is the "first and so far only IaaS company using this technology."
ProfitBricks is based in Berlin, and its founders were involved with 1&1 Hosting, which is one of the largest Web hosting providers in the world and which was sold for $3 billion.
Is the dramatically lower pricing enough to cause the developers to choose ProfitBricks over AWS? Michael Facemire, an analyst with industry research firm Forrester Research, told us that developers are not so much inclined to go with a cloud brand name like Amazon as they are to "follow known working patterns."
He added developers "aren't going with Amazon because they're BMW," where the price bump is worth the brand name and assured quality, but because Amazon has "a known API, pretty good uptime," and a variety of processes and features with which developers are familiar.
Facemire said it was unlikely that a developer who was already working with AWS would move everything and learn new processes because of a price difference, although a developer who is not currently a customer of AWS might well consider ProfitBricks.
"For a developer," he said, cloud environments "are not yet a commodity."
Posted: 2013-08-02 @ 6:56am PT