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The Era of Cloud Price Discounts Is Fading

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Not so long ago, the discussion of whether businesses should use Amazon, Microsoft, or Google data centers instead of their own, centered mostly around pricing. The conventional wisdom was that cloud computing equaled inexpensive while using internal data centers was pricey.

It was a very simplistic—some would say inaccurate—description. But with the big three cloud providers cutting prices of their computing power seemingly every other day, the perception was reinforced.

What was lost in the debate was that while computing and storage prices often fell, the price of other cloud services including networking and things like workflow and data analytics did not. And, the price of moving data out of a given cloud is downright breathtaking, not to mention time-consuming, for a company.

So price is a factor—but not the only factor in the cloud computing decision, a notion that new Deutsche Bank (DB) research published Monday seems to bear out. The broad lessons from the bank’s cloud pricing “primer” are that the frequent price cuts peaked in early 2014 have slowed. And that’s because cloud leader Amazon Web Services is being “rational” in its approach, the researchers said.

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Basically, they found that Amazon Web Services (AWS) pricing on basic services declined 10% to 20% annually since 2014. Not bad, but hardly surprising. (Perhaps the exception to prove the rule, or perhaps to prove the rule is invalid, Amazon cut prices on some EC2 computing “instances” last week and on its S3 storage and Glacier archival storage on Monday.)

This is not to say that big corporate customers can’t score far better terms in negotiating large contracts (the same held true in negotiating traditional software license agreements in the old world). Savvy Fortune 500 companies can get significant discounts in the course of cutting enterprise contracts with Microsoft or Amazon (AMZN), if they play their cards right. That’s particularly true as Microsoft (MSFT), Amazon, Google, IBM (IBM) (GOOG), and others fight hard for big whale accounts they can point at to show that their respective clouds are ready for the biggest of businesses.

AWS, which was first into the public cloud computing pool ten years ago, rose to prominence by getting startups aboard early. Now it’s in year five or so of a massive enterprise push that it will likely burnish build upon next week at its annual AWS Re:Invent conference in Las Vegas.

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So price cuts are stabilizing while the big three cloud vendors keep reducing costs from their infrastructure. That means that profit margins for the cloud providers should improve, which is good news for investors. And, the report’s authors conclude that the total market for public cloud is so huge and that cloud adoption rates are still so low, that there is room for all of the big cloud providers to grow—and profit—going forward.

Note: this story was updated to include news of two AWS price cuts in the last two weeks.