Cloud computing titans drop prices to attract more businesses

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12 March 2012 | 0

Google has cut the price of its Cloud Storage service and Amazon Web Services has dropped prices on Elastic Compute Cloud, Relational Database Service, ElastiCache and Elastic Map Reduce. Amazon highlighted how the new price cuts will particularly reduce costs for big businesses.

The price cuts come as the service providers try to convince potential new customers to move to the cloud model, one expert said.

"The myth is that cloud computing is always cost-effective," said David Linthicum, CTO of Blue Mountain Labs, a company that advises businesses on moving to the cloud. "In many instances, it’s not."

 

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Service providers like Amazon are likely hearing this from potential customers, he said. "They’re losing on deals where people are going to buy hardware and software because it’s cheaper than leasing their services," he said. "They’re reacting by reducing price to capture market."

Amazon, Microsoft and Google are likely willing to drop prices quite a bit, he said. The cloud services are not a primary business for any of the companies, he noted. Plus, once any of them wins a customer, they have a good chance of holding on to the customer for a long period of time because it’s difficult for users to switch cloud service providers. For those reasons, Linthicum expects plenty of additional price drops in the future, he said.

The cuts could point to other issues in the market, another analyst said. "They probably signal a developing overcapacity problem in the market for basic public cloud hosting," said Marc Brien, vice president of research at Domicity, a consulting and analysis company.

The continued price cuts by Amazon, this is its nineteenth price reduction, indicate a strategy of trying to drive away competition. "They likely have the most favourable cost structure of anyone in the public hosting industry and want to force a rationalisation of the industry in their favour by putting up prices that make the whole thing unappealing and unprofitable for anyone else," Brien said.

Microsoft, Google and Amazon may also be bracing for the near future when other big companies with deep pockets, like Hewlett-Packard and telecommunications providers, enter the market, he said.

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