Why Cloud Vendors Aren’t Talking So Much About Price Cuts Anymore
What do companies say when they want to end a price war for their products and services? Typically something along the lines of, “we compete and win based on quality, not just on price.”
Now, cut to Scott Guthrie, the Microsoft executive vice president in charge of the company’s Azure cloud computing effort, who spoke earlier this week at the Deutsche Bank Technology Conference. There, when asked about the cloud pricing situation, Guthrie noted:
“For the most part we’re not competing on price, ” he said. “Typically we’re competing more in value I’d say at this point, [as opposed to] two or three years ago where I think it was actually more about cost per VM or cost per storage.”
VM refers to a virtual machine, Microsoft’s term for a standard unit of Azure computing power.
Microsoft Azure competes with market leader Amazon Web Services, known for fast-and-furious price cuts on its computing and storage services. It even cut prices before Microsoft (MSFT) and Google entered the fray. When those companies introduced their AWS competitors, a three-way price war ensued. Things seem to have quieted down in the past year.
By a quick tally taken from this AWS list, there appear to have been two price cuts this year and there have been something like 52 total over the decade of AWS’s existence.
The notion that the era of whirlwind price cuts may be over is a change from two years ago. Then, at another tech conference where Guthrie was asked if Amazon, Google (GOOG) (GOOGL), and Microsoft would continue the price-cutting round robin indefinitely, he said, “That’s the way I’m modeling it.”
RBC Capital Markets analyst Jonathan Atkin, who follows cloud pricing closely, said things have definitely changed over the past year during which “the magnitude and frequency of true price cuts—that impact user spending—has been less than prior years, especially 2014.”
Gartner cloud analyst Lydia Leong also sees changes afoot. “Neither AWS nor Azure competes primarily on price. Azure in particular has significantly eased back on promotional pricing—it may be used to getting customers onto the platform but such customers can face significant price increases once their introductory offers have ended,” she said via email.
In addition, she noted that AWS, Azure, and Google are all bundling more features into existing products for free, rather than significantly cutting compute prices.
A year ago at Amazon’s big cloud event, the news was all about new products and features, not price cuts. But at the time AWS chief Andy Jassy said that did not mean the end of price cuts, just that the company wanted to focus on other things. Prices will continue to fall, he said.
At the Deutsche Bank event, Guthrie also noted that the three biggest cloud vendors—Microsoft, Amazon and Google—can also save customers money in ways other than cutting prices. These companies, because of their sheer size and sophisticated automation, let customers add and delete computing resources as needed. That alone can eliminate overall cost since the customers, in theory, only pay for the computing power when they use it. These same big customers traditionally maintained entire data centers chock-full of computers that could end up unused much of the time. So they were paying for real estate, power, etc. even when they weren’t running at anywhere near full capacity
Guthrie also noted that big companies, including many in the financial services and other industries that have been conservative about using outside computing resources in the past, are more serious about moving data and applications to public clouds like Azure.
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New research seems to confirm that notion. Results from a McKinsey & Co. survey of 800 IT executives released Thursday found that large enterprises are much more open to adopting public cloud than in the past.
From the report:
More large enterprises are likely to move workloads away from traditional and virtualized environments toward the cloud—at a rate and pace that is expected to be far quicker than in the past.
Survey participants from big companies, in particular, showed greater openness to adopting public cloud services than in the past, according to McKinsey, with many planning to migrate up to 20% of all workloads that now run on their internal Intel-based servers to public clouds within two to three years. Private cloud adoption looks hot as well. Private clouds offer the same sort of flexibility to add resources temporarily but all of the infrastructure is dedicated to a single company, whereas public clouds comprise massive numbers of shared computing power. McKinsey said it expects companies to nearly double the workloads running in private cloud in the next two years.
And, according Gartner’s (IT) latest predictions, the worldwide market for public cloud services, will grow 17.2% this year to $208.6 billion from $178 billion in 2015.
Note: This story was updated with the total number of AWS price cuts.