The tit-for-tat cloud price cuts by Amazon Web Services, Google Cloud Platform and Microsoft Azure were as predictable...
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as the pre-OPEC gas price wars. But determining a cloud cost comparison that works for all providers can prove difficult, even as price cuts have bottomed out.
Despite continued declines in the cost of data center hardware -- the price for a popular 500 GB SSD has dropped 30% in the last six months, while even a relatively new 8-core Xeon Haskell (v3) goes for 10% less than it did a couple months ago -- cloud price cuts have slowed. More than a year ago, Google's senior vice president Urs Hölzle noted that prices haven't been keeping up with Moore's Law; instead of dropping 20% to 30% per year, public cloud prices dipped only about 7% annually.
Running the numbers: IaaS cloud cost comparison
Google's cloud price cuts have been far from linear, and the same can be said for Amazon Web Services (AWS), which is the price leader by some measures. In early 2015, AWS cut prices 44 times in the span of a year; however, it only cut prices on two services in the last six months.
Wall Street analyst Mark Mahoney used a metric that measures average monthly cost per GB of RAM across various compute workloads. This cloud cost comparison showed that AWS was by far the cheapest service -- 22% below Google and IBM Softlayer, 26% less than Azure and less than half the price of VMware (vCloud Air). From October 2013 to December 2014, Mahoney's metric showed average AWS Elastic Compute Cloud instance prices had dropped 8%, versus reductions of 6% for Google and 5% for Azure.
A more recent head-to-head analysis by RightScale, a specialist in multi-cloud management software, found Google to be the value leader over AWS. Across standard compute instance types, RightScale found that Google was more than 25% cheaper for all but the most memory-heavy instances. But making a cloud cost comparison can be difficult due to the different price models AWS and Google use.
Prognosis and analysis
As evidenced by Amazon's surprisingly strong earnings reports the last two quarters, the company is displaying a commitment to profits and margins over unrelenting and capital-intensive expansion. At AWS this manifests as a shift from price-driven growth to service-driven, long-term enterprise commitments that lead to sustainable profits. RightScale's conclusion was: "Over the past nine months, AWS seems to be shifting its focus to differentiate based on features vs. costs … but it's yet to be seen whether the company will try to undercut Google prices or go for a 'close enough' strategy."
Indeed, one economic analysis concludes that "large-scale public cloud computing is a natural oligopoly" where the "cost position gained from economies of scale provide a significant 'moat' for incumbent large scale cloud providers, representing significant barriers to entry and putting a natural limit on the number of big players in this elite club.
"Price is the one lever on which it does not pay to compete, since in most cases moving price leads to less total profit. The (economic) model would suggest that we would continue to see substantial non-price competition in the form of more and more wonderful services being layered on top of the core offering."
If a company becomes a monopoly, it risks customer and regulatory blowback. Given the relative financial parity -- if not market parity -- among major players, price wars generally only lead to lower profits, not increased market share.
Reading the re:Invent 2015 tea leaves
The focus on enterprise services at AWS re:Invent was directed toward corporate developers, not independents. Although re:Invent has always been a developer-centric event, the emphasis this year was on those working within large organizations requiring a myriad of enterprise services and tight integration to external systems. This shift from indie cloud natives to corporate cloud advocates marginalizes the importance of raw pricing.
As the cloud value chain fluctuates, it becomes difficult to do price and TCO comparisons, as one-to-one matches for a particular cloud service across providers does not always exist. Comparing the cost of running apps with an infrastructure as a service provider and with a do-it-yourself approach is even more difficult to estimate due to the software and operational costs involved with running a private cloud, including complexity of configuration and administration tasks, variability in admin overhead efficiency and pay, software licensing and so on.
This means that the cloud make/buy decision may no longer be a simple matter of measuring the price of a VM using amortized hardware costs. For enterprises trying to optimally allocate cloud budgets between AWS and other public cloud providers, there are several potential implications.
Google will likely continue to vie for the price lead with innovative billing models and application services that cater to startups and developers.
Microsoft Azure will likely battle a now-distracted VMware -- see the Dell-EMC merger and resulting confusion around VMware's future -- by focusing on existing enterprise customers with a strong hybrid cloud portfolio. This could provide a consistent infrastructure and management stack across shared public and dedicated private clouds.
And AWS will pursue Greenfield cloud-native workloads in every market, with a particular emphasis on large enterprises or on repurposing workloads from private data centers to the cloud. AWS likely will build on its rich set of products with integration tools to ease data migration and facilitate communication and the interchange data between legacy on-premises applications and new cloud-native apps.
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