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Lack of price cuts fueled AWS growth in Amazon earnings

Amazon earnings show a dominant position for AWS, partly because price cuts have slowed in the last year.

Cloud pricing wars are in a ceasefire for now, if Amazon earnings are any indication.

While Amazon Web Services (AWS) has seen an uptick in usage compared with a year ago, a lack of cloud price cuts last quarter compared with the same quarter in 2014 also contributed to strong growth for AWS, according to officials on an Amazon earnings call this week.

There have been a few price reductions from AWS this year, but they pale in comparison to last year's second quarter, which saw price cuts for Amazon EC2, Amazon S3, the Amazon Relational Database Service and Elastic MapReduce.

"We [had] a number of large price decreases in Q2 of last year, so it was somewhat expected but a very strong quarter in AWS," said Brian T. Olsavsky, senior vice president and CFO for Amazon, in response to an analyst question about de-emphasized price cuts.

AWS' operating income grew 81% last quarter compared with the second quarter of 2014, on revenues of $1.8 billion as compared with revenues of $1 billion last year.

"While pricing is certainly a factor we don't believe it's always the primary factor [in cloud adoption]," Olsavsky said. "In fact, what we hear from our customers is that the ability to move faster and more agiley [sic] is what they value."

Despite market hype over price reductions the last two years, particularly as AWS and Google duke it out in the infrastructure as a service market, AWS users and analysts said they agreed with this assessment.

"It would still be cheap even if they never lower the price again," said Jason McMunn, chief cloud architect at Ditech Mortgage Corp., in Fort Washington, Pa.

For larger enterprises, the cost of infrastructure is always incidental to the cost of operations - think of a $10,000 server vs. a $100,000 developer or IT manager, for example, said Carl Brooks, analyst with 451 Research, an IT analysis firm based in New York.

"That didn't change when enterprises shifted to cloud computing," Brooks said. "What changed was the pattern of investment and the ability to shift costs more rapidly according to need."

Amazon earnings show AWS dominance, but challenges on horizon

AWS growth is clearly up, but long-term the company faces challenges in competition from other large IT vendors and a transition toward server less computing, according to analysts and IT pros.

AWS primarily sees Google, Microsoft and IBM in its rear-view mirror, and will be challenged as these vendors gain traction, according to a note to clients sent out by Technology Business Research Inc. software and cloud analyst Meaghan McGrath, following the Amazon earnings report.

Each competitor offers its own threats to AWS, McGrath wrote: Google with constant innovation in cloud, mobile, Business Intelligence and the Internet of Things; Microsoft with a large and devoted customer base and Azure's ability to run across hybrid environments; and IBM's sheer determination, execution and investment dollars in its cloud capabilities to move into a leadership position in the space.

"Glancing over its shoulder at the encroaching IaaS and PaaS competition does not worry AWS quite yet, but the vendor’s position as a niche public cloud IaaS vendor will limit its upside potential," McGrath said.

Customers look for cloud suites that simultaneously offer development and hybrid IT deployment capabilities alongside a full applications suite, professional and managed services, popular open source support, and out-of-the-box integration, McGrath wrote. Amazon glaringly lacks an application suite to match Microsoft's Azure offerings in particular, she said.

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

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Which cloud provider is the biggest threat to AWS?
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It's interesting that some of those analysts are still categorizing AWS as an IaaS, especially vs. PaaS vendors. Instead of thinking of PaaS as a defined platform, I'd suggest that people think about it more as a set of services that help application developers. If you use that broader definition, that it becomes clearer that AWS' recent announcements are highly focused in that space and further along than many defined PaaS platforms.
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I'd agree that it helps that AWS isn't cutting their prices, but I'd suggest that we're now seeing more companies being comfortable with using public cloud. It has become more stable, has more features and the benefit of agility has overcome the other concerns of the past. It's an indicator that consumption rates will begin to grow even faster. It's analogous to when people stopped worrying about the quality of mobile calls and started appreciating the benefits of mobility on their work environment. 
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"While pricing is certainly a factor we don't believe it's always the primary factor [in cloud adoption]," Olsavsky said. "In fact, what we hear from our customers is that the ability to move faster and more agiley [sic] is what they value."

This is key. Price alone isn't going to dissuade an organization when they can see the benefits of quicker adoption and the ability to change or reallocate resources on current needs. As we focus on multiple branches and getting releases ready, there are times we need ten times the server resources than we need during other times. In this case, it really is a plus to boost when we need to and cut back when we don't. 
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