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In public cloud computing fight, the gloves come off

Bernard Golden | April 11, 2014
Price cuts from Amazon, Google and Microsoft support predictions that the public cloud computing market is a race to the bottom -- for pricing, that is. Customers will no doubt benefit, but cloud providers who aren't one of those three companies should be prepared for a long, hard war of attrition.

There's another way of looking at it, of course: Each is terrified at being rendered irrelevant to the future of IT and is determined to do whatever it takes to stay at the table, even if it means carrying on a sustained price war.

Google, AWS and Microsoft each have both strengths and vulnerabilities, making it difficult to directly compare them on dimensions other than cost. That said, users can expect low costs and ongoing price cuts as each of the three shows a willingness to reduce margins in search of market share.

Certainly, from a user perspective, the prospect of three giants constantly chopping prices in a fight to induce adoption is enticing. While users shouldn't overlook other factors when deciding which provider to use; however, expectations of future cost reductions should be factored into selection decisions.

Given the reality of low and falling costs, what conclusions should we draw? Here are four thoughts pertaining to users and four that matter to cloud providers.

What Low Public Cloud Computing Costs Mean to Users
1. If you've been planning a private cloud based on an assessment (or belief) that you can operate at lower cost than available from public providers, you have to rethink your business case. How competitive can you be at today's prices - and how well can you compete against future prices reductions likely to be on the order of 30 percent per annum?

2. It's a buyer's market, so don't be afraid to bargain. Public cloud environments resemble all capital-intensive industries: Heavy investment requires high utilization to turn a profit which, in turn, dictates a willingness to trim prices in an effort to raise utilization.

3. If you still maintain a desire to run your own cloud, even after these price cuts, recognize that the reasons to use it will rest on compliance and locality of data. Be ready to focus on these areas and bring real competence regarding them.

4. Understand why you're adopting cloud computing: It reduces the friction involved in infrastructure provisioning and thereby enables agility and speed. This means that low prices aren't enough. In addition, the provider's service breadth and ecosystem richness are critical components necessary to accelerate your application lifecycle. Evaluate these factors in addition to costs in your selection decisions so that you gain the greatest benefit from using cloud computing.

What Low Costs Mean to Cloud Service Providers
1. Recognize that cost competition will be an ongoing presence in this market. Expect continuous price cuts to be part of your daily reality. Amazon's stated market strategy is to seek large profit pools and figure out a way to drain them by offering low-cost offerings. The days of offering barely differentiated products and services carrying high margins are over. Figure out how to succeed with low profit margins.


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