News

Amazon EC2 price cuts signal IaaS land grab

Beth Pariseau

Amazon's new generation of Standard Amazon Machine Instances and reduced on-demand Linux prices will kick off a new pricing war for IaaS providers, experts say.

The new Standard Amazon Machine Instances (AMIs), introduced this week for Amazon's Elastic Compute Cloud (EC2), follow Moore’s Law in adding processing heft. Each has 50% more processing power than the first generation and is optimized for applications such as media encoding, batch processing, caching, and Web serving, Amazon said.

It is obviously a land grab.

Larry Carvalho, Robust Cloud LLC.

The company also made these cuts to the prices of first-generation Linux on-demand EC2 instances:

  • Small instances (up to 1.7 GB of memory) cut from 8 to 6.5 cents per hour
  • Medium instances (1.7 GB to 3.75 GB) cut from 16 to 13 cents per hour
  • Large instances  (3.75 GB to 7.5 GB memory) cut from 32 to 26 cents per hour
  • Extra large instances (7.5 GB to 15 GB memory) cut from 64 to 52 cents per hour

At 18% to 20%, it’s a substantial decrease, but it’s also the 21st time Amazon has lowered its prices, said David Linthicum, chief technology officer and founder of Blue Mountain Labs. The difference this time is that Amazon and its established competitors, such as Rackspace, are facing new threats from emerging IaaS companies, some of which may come from overseas and could offer as much as 50% off Amazon's prices.

“It’s going to be a race to the bottom,” Linthicum said. “Amazon as well as Rackspace and other leaders in this space … [are] creating loss leaders to gather as much market share as they can over the next couple of years.”

The Amazon EC2 price cuts seem odd, given that the company lost more than $200 million dollars last quarter, said Larry Carvalho, owner of consulting firm Robust Cloud LLC.

"So it is obviously a land grab in terms of getting more people to use [the service],” he said.

The Amazon price cuts are also a move to get existing customers to leave more of their static infrastructure on Amazon Web Services, rather than moving it to a colocation data center or some other alternative, Carvalho said.

The new second-generation standard AMIs will be available in extra large (15 GB) and double extra large (30 GB) sizes, which will go for 50 cents an hour and $1.16 an hour, respectively.

Beth Pariseau is a senior news writer for SearchCloudComputing.com and SearchServerVirtualization.com. Write to her at bpariseau@techtarget.com or follow @PariseauTT on Twitter.