Cloud

Amazon Web Services leads war on cloud price reductions

According to Matt Asay, AWS is a tough cloud competitor, one that will be tough to dislodge as it increases performance and functionality, even while reducing prices.

 

Cloud infrastructure
 

Even as Microsoft struggles to simplify its pricing for a host of software products, like Windows Server and Office, the public cloud providers, including Microsoft, have come up with an even simpler strategy: offer easy-to-understand pricing, and then consistently drop that price toward $0.

In this race to the pricing bottom, however, it's Amazon Web Services (AWS) — not Microsoft — that leads the pack, according to a new RightScale report. Given AWS' penchant for improving its service, even while lowering prices, it's hard to see the cloud giant losing its leadership role. And with 70% of CIOs expecting to change their tech vendors over the next three years, there are literally hundreds of billions of dollars at stake.

A race to $0

Richard Smith, general manager of Microsoft's global licensing and pricing division, declares that the software giant is "taking careful, deliberate steps to introduce a next-generation approach to commercial licensing with a new, more flexible and simplified purchasing experience across all solutions." It's a nice thought, but it's also increasingly irrelevant. As more enterprise workloads move to the cloud, getting the right balance between functionality and cost is critical.

Here, Amazon clearly leads, though Google this week dropped prices in a way that clearly will get the attention (and possibly margins) of AWS, as Jack Clark notes:

"Google's price changes are significant and represent a grave threat to Amazon's business. G'bye Bezos's treasured margins."

This theme of price competition, however, has resonated for years, as RightScale's findings show:

  • Amazon led on price reductions: In 2013, AWS set the standard in terms of frequency and size of reductions, forcing others to follow. AWS had the most price reductions, the largest price reductions, and focused on reductions in compute services, which are typically the highest percentage of a company's cloud bill (Figure A).
    Figure A
    Figure A
     
  • Cloud prices continued to drop: In 2013, the four public cloud providers rolled out 25 price reductions across compute, storage, and networking, up from 22 price reductions in 2012. AWS continued to lead the way, announcing 12 price drops in 2013, down from 13 the prior year. Azure, Google, and Rackspace stepped up their pace, accounting for a combined 13 reductions in 2013, up from nine reductions in 2012.
  • Reductions in compute prices accelerated: There were twice as many price reductions on compute services in 2013 (10 reductions) compared to 2012 (five reductions). This is good news for enterprises who still allocate the vast majority (70% to 90%) of cloud spend to compute.
  • Reductions in cloud storage prices got larger: Cloud providers also focused attention on storage prices in 2013. Storage saw six price reductions across the four vendors, down from eight last year. However, the average size of the price decrease was larger in 2013 (32%) than in 2012 (20%).

Amazon keeps pushing the envelope on what enterprises should expect to pay for cloud services. This wouldn't be a big deal if AWS were the low-end upstart hoping to price its way into enterprise hearts. But it's not. AWS is the market leader, and by a long way, as Gartner finds, both in terms of market share and functionality.

If anything, this lead is growing, as then-director of cloud for Netflix Adrian Cockroft opines:

"A barrier for people currently using AWS is the feature gap to anything else. OpenStack not closing [the] gap."

Despite this functionality lead, only Amazon has increased the size of its cost reductions from 2012 to 2013, suggesting that no one is even trying to keep pace with AWS, at least as regards price.

Discounting the database?

Nowhere is this more visible than when it comes to the database. While most everything is cheaper, especially compute, one area hasn't been touched at all: the database. Despite improved database offerings from Amazon and others, public cloud providers discounted the database least of all, representing just 8% of reductions in 2013 compared to 14% in 2012 (Figure B):

Figure B

 

Figure B
 

RightScale reductions by service.

But that's not quite accurate. After all, one major cloud provider did discount the database: AWS. And quite a bit (Figure C).

Figure C

 

Figure C
 

RightScale cloud price reductions.

Given AWS' leadership, it's safe to assume other cloud providers will follow suit in 2014 — or not, given their unwillingness to follow AWS down the price curve. It could also up the functionality curve, as Gartner analyst Lydia Leong speculates:

"Many [AWS] competitors haven't had the willingness to invest the resources to compete ... they've failed to understand that this is a software business, where feature velocity matters."

How do you compete with free?

Two things are clear: first, AWS is a tough competitor, one that will be tough to dislodge as it increases performance and functionality, even while reducing prices. Second, and more importantly, no matter which of the public cloud vendors wins the price war, customers ultimately benefit most. Whatever the initial reticence to move workloads to the cloud, those concerns are fading in light of the improved agility and cost benefits derived from the public cloud, as well as the potential to keep some workloads behind the firewall in a hybrid environment. 

About

Matt Asay is a veteran technology columnist who has written for CNET, ReadWrite, and other tech media. He is currently VP of Mobile at Adobe. Previous positions include VP of business development and marketing at MongoDB and COO at Canonical, the Ubu...

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