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Importance of cloud price cuts not what it used to be

Vendors continue to roll out cloud price cuts, but the cost of compute and storage takes a backseat to speed and agility when selecting providers.

Another day, another drop in public cloud pricing -- an all too familiar theme that is making less of a splash...

with customers as other factors start to take greater priority.

Amazon Web Services (AWS), Google and Microsoft continue to drop the price of cloud services as they compete for growing market share amid prevailing wisdom that compute and storage prices will continue to drop. And while price will always be a factor, analysts say it's secondary to speed and agility.

Google has driven the falling prices this year under the guise of Moore's Law and provided a variety of cuts in November on top of the across-the-board 10% cuts to Google Compute Engine in October. AWS didn't follow suit at its re:Invent conference last month as expected, but announced various data transfer price cuts this week.

Cloud price cuts would be a bigger deal if a vendor was gouging a customer or broadly overcharging, but that not the case with these providers, said David Linthicum, senior vice president of Cloud Technology Partners, a cloud consulting company based in Boston.

"As long as your prices are reasonable, it's typically not the focus of enterprises when they pick cloud providers," Linthicum said.

The initial draw to cloud was that it was a different consumption model and the assumption always was that prices would change, Linthicum said.

What's more important is the best products and finding the technology that fits the customers' needs to get things up and running quickly.

"Although the public cloud economics discussion often gets a lot of attention, it's really only a part of the overall value proposition -- and not the most interesting part in any event," said John Treadway, senior vice president with Cloud Technology Partners. 

There's no benefit to taking the lead on pricing -- it's not the way to win anymore.
Ellen Rubinco-founder of ClearSky Data

AWS will drop prices when it finds optimizations within its services or when competition drives price down throughout the year, said Kyle Hilgendorf, analyst with Gartner Inc., an analyst firm based in Stamford, Conn. 

Ellen Rubin, co-founder of ClearSky Data, a stealth startup based in Cambridge, Mass., who has also worked for Verizon's cloud division in the past, said Google's major price cuts are a way of forcing comparisons between its services and AWS'.

"There's no benefit to taking the lead on pricing -- it's not the way to win anymore," she said. "I would assume that if Amazon has to respond, they will, but going forward it may be more about the incremental value of services than lowering prices every six months."

Indeed, Amazon is trying to send a new message, said James Staten, analyst with Forrester Research, based in Cambridge, Mass.

"The price cut battles are shifting away from core compute and storage and toward managed databases and application services," he said.

Taking a step back on cloud

For most enterprises, public cloud spending remains a relatively small part of the overall budget. Users sometimes focus on the changes in charges per gigabyte or per minute, but there's far more that goes into it than simply consumption pricing, including more hidden costs associated with network traffic and bandwidth that need to be factored into a more holistic perspective, Linthicum said.

"It's about total cost of ownership rather than total cost of cloud," he said.

Indeed, the cost for those basic services could eventually become irrelevant to vendor selection, said Owen Rogers, an analyst with 451 Research, LLC, based in New York.

"Object storage and compute are increasingly commoditized and I wouldn't be surprised if we saw them bottom out at zero in the future and these providers profit by value-added services," said Rogers.

The research firm has developed a cloud pricing index that details the broader cost of cloud services and keeps tabs on the ever-changing pricing landscapes. The index is used to calculate the cost of using a typical application across various vendors and how that changes over time, Rogers said.

"Just the price of VMs and storage is an unfair representation of how much cost changes are going on in the cost of typical application," Rogers said.

In fact, 451 Research went to a number of cloud vendors and was surprised to find that some couldn't provide all the services needed for the theoretical application being pegged for the pricing index, while others weren't willing to share pricing in a practical way that gives a fuller understanding on what a customer can expect to pay.

Because of these limitations, 451 Research came out with two indexes -- one that focused on total cost and another that focused on virtualization because of the limited information given by some vendors. In the first Cloud Price Index, released in October, the average hourly price for a typical Web application was $2.56, with the price from the three 'hyperscale' vendors averaging $2.36. The Virtual Price Index, which represented the average three-tier Web application, was $0.73 for all providers, and $0.78 for the hyperscale providers.

Beth Pariseau is senior news writer for SearchAWS. Write to her atbpariseau@techtarget.com or follow @PariseauTT on Twitter.

Trevor Jones is the news writer for SearchCloudComputing. You can reach him at tjones@techtarget.com.

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How important is cost in your decision making about cloud vendors?
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Cloud storage and cloud networking are the next big things, and fortunately for the end users and for people in the IT industries, the cloud vendors know it. We're willing to pay a certain price for our cloud functionality, but cloud vendors are currently looking to undercut each other in fairly significant ways. At the moment, we're paying less than we have budgeted for our cloud services, so that means that cost is actually a fairly large consideration when it comes to deciding who we want to work with. This may not hold true in a few years, when the industry normalizes, but right now, that's the way it is.
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It all depends who is making the buying decision. If it's developer-centric, they'll care more about the speed and agility aspect, because that's what they get measured on. If it's IT-Ops centric, then they always care about costs no matter how much they tell you that agility is critical. 
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It's like Gartner figured out decades ago -- it's not just cost, but the total cost of ownership. Cloud storage is approaching free. Once that happens, you need to find a different metric.
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A lot depends on the needs of the company.  I for one favor a platform that has better support (for example, Rackspace).  But a lot is going to depend on what cloud platforms best support the direction of the company, and what their business model is.  A company that cares about high quality and support will want something, and a company that just wants to churn as much as they can in large increments, may want something else.
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It's like Gartner figured out decades ago -- it's not just cost, but the total cost of ownership. Cloud storage is approaching free. Once that happens, you need to find a different metric.
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