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AWS price-cut patterns reflect cloud growth, maturation

AWS dropped prices for the 51st time in its history, but the bloodiest days of the cloud pricing wars may be in the rear view mirror.

AWS rolled out price cuts for some of its Elastic Compute Cloud instances this week, though the markdowns were...

not as steep or broad as in previous years.

Elastic Compute Cloud (EC2) instances in the C4, M4 and R3 families are being cut by 5% if they run certain flavors of Linux; changes to On-Demand and Dedicated Host pricing will apply retroactively to the beginning of this month, while Reserved Instance pricing goes into effect this week.

AWS had 42 price cuts over its first eight years, and has had an additional nine since -- three of which were announced in 2015. The most recent AWS price cut for EC2 instances also means a 5% reduction for some flavors of Linux instances. In 2014, EC2 prices were slashed by as much as 40%, with substantial price reductions applying to both Windows and Linux servers.

In a blog post, Amazon officials said this week's AWS price cut also applies to some Windows instances, but are not as deep as the 5% cuts offered for some Linux instances. Instances running Red Hat Enterprise Linux or SUSE Linux Enterprise Server operating systems are being cut by less than 5% this time as well. Amazon reps declined to specify a reduction percentage for Windows, Red Hat Enterprise Linux and SUSE Linux Enterprise Server.

Customers won't turn their noses up at any AWS price cut, adding the slowdown in AWS' frequency the past two years is hardly a deal breaker.

"It's not going to make a substantial difference to us one way or the other," said Jason McMunn, chief cloud architect at Ditech Mortgage Corp., based in Fort Washington, Pa. "It's not like there's a huge point of contention around cost."

In fact, McMunn added, he'd rather pay the same amount if it means continued innovation coming from Amazon.

"I'd rather spend the money we're spending on developing Lambda" and receive more powerful features, rather than just more cost reductions and "having them try to go Wal-Mart on us."

The pattern of slowing price cuts is to be expected with the kind of growth Amazon has seen, according to analysts.

"As you get bigger and bigger, you get less able to do radical things to your cost structure," said Carl Brooks, an analyst with 451 Research. "It's just a function of being a very large operation -- I don't think it says much about their margins, or their ability to gather new business."

That was less the case four or five years ago, when AWS was a much smaller organization, Brooks noted.

Other analysts said they'd be waiting to see what 2016 will bring for price cuts before calling their slowdown a trend.

"I believe that the huge 2014 price cut likely represented what was effectively both 2014 and 2015's worth of price cuts all at once," said Lydia Leong, an analyst with Gartner.

List prices also don't necessarily reflect actual prices that customers are paying, either, Leong pointed out.

"On a street-pricing level, AWS pricing continues to drop in the form of negotiated volume discounts offered to customers on enterprise agreements," she said.

The C4 and M4 instance families are seeing prices cut for On-Demand, Reserved Instance and Dedicated Host types in the following regions: U.S. East (Northern Virginia), U.S. West (Northern California), U.S. West (Oregon), Europe (Ireland), Europe (Frankfurt), Asia Pacific (Tokyo), Asia Pacific (Singapore) and Asia Pacific (Sydney), according to the AWS blog. 

On-Demand, Reserved Instance and Dedicated Host prices for R3 instances running Linux also are being reduced by 5% in the U.S. East (Northern Virginia), U.S. West (Northern California), U.S. West (Oregon), Europe (Ireland), Europe (Frankfurt), Asia Pacific (Tokyo), Asia Pacific (Singapore), Asia Pacific (Sydney) and South America (Brazil) regions.

On-Demand and Reserved Instance prices for R3 instances running Linux are being cut by 5% in the AWS GovCloud (U.S.) region.

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

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Would you like to see steeper AWS price cuts this year?
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Amazon has steadily driven AWS prices lower. 51 price cuts as you pointed out. And AWS’ success speaks for itself. Amazon’s relentless price cuts have created the perception that cloud computing is always cheaper. But that’s not always the case.

Several surveys have shown that agility, not cost savings, is the principal benefit of the cloud for most organizations. In fact, many organizations have been so impressed with the fast ramp-up, scalability and agility of the cloud that they are moving towards multi-cloud interconnection scenarios that string several cloud services together to deliver one or more business services.

Equinix recently wrote about several cloud computing myths, including the belief that cloud computing is automatically lower cost: http://bit.ly/1ONIVDR

Jeff Rutherford
commenting on behalf of IDG and Equinix
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