Cloud price cuts continue with Azure, but don't expect a trend

Microsoft Azure will reduce VM cloud prices next month by up to 17%, tapping into customers' cost sensitivity around this time of year when budgets are top of mind.

The year 2016 started with a bang in terms of cloud price cuts, but don't expect the fireworks to continue as the...

year goes on.

Microsoft this week said it will cut prices on its D-series virtual machines next month by up to 17%, while also swiping at Amazon Web Services (AWS) by including services for free that its competitor does not.

The move comes a week after Amazon reduced prices for its Elastic Compute Cloud instances in the C4, M4 and R3 families by 5%. Google then needled the market heavy in a blog post, declaring its platform still has the cheapest cloud prices among the hyper-scale vendors.

The flurry of price cuts and proclamations about delivering the biggest bang for the buck in cloud comes after a relatively quiet 2015 on this front. Vendors put a greater focus on additional feature sets, instead of the race to the bottom that defined prior years.

"[That's] how Microsoft and Google even got their name[s] out there in the first place, and people started putting them more with AWS as more of a three-horse race," said Jillian Freeman, senior analyst at Technology Business Research Inc. based in Hampton, N.H.

Core features such as storage, compute, and capacity remain these vendors' biggest revenue driver, and cloud price cuts become less of an issue when higher-level services come into play, according to Freeman.

"I don't think it's going to be a big price war again, because people are looking at more than that," she said.

The Cloud Price Index, a service from 451 Researchthat calculates the total cost of ownership for running workloads on various cloud platforms, found that overall prices came down only 2.5% last year.

Owen Rogers, the architect of the Cloud Price Index and a research director at 451 Research, doesn't expect to see the type of cloud price wars that were central to the market in 2014 either. It's also no coincidence that the latest round of cuts comes when budgets are front of mind for many executives, he said.

Cloud price cuts only go so far

Agolo, a New York startup that curates and personalizes social networks and news, moved to Azure in 2014 after receiving startup credits from Microsoft. The company has legacy systems on AWS as well.

"It's amazing to see every now and then an email update on the market and how competition is driving prices down," said Mohamed AITantawy, Agolo's CTO and co-founder. "Definitely, cutting prices down is fantastic for a startup like us."

Still, price cuts and credits are only one piece of the puzzle for cloud customers. Agolo has turned down offers from other vendors advertising a cheaper price because they have inferior feature sets, AITantawy said. In his experience, older services get incrementally reduced in price as newer services come online.

"You start using these new capabilities and you basically find yourself scaling and spending more money than you're saving," AITantawy said. That's not necessarily a bad thing, he added, "because if you're scaling and getting new, bigger bandwidth it means the service is working and people are using it."

The reductions will apply to the Dv2 Virtual Machines, with savings ranging from 10% with Windows instances using D1-D5 v2 VM type to 17% using Linux instances with the D11-14 v2 VM type, Microsoft said in a blog post.

Beyond simply reducing pricing, Microsoft noted that unlike AWS EC2, the Dv2 instances include load balancing and auto-scaling at no extra charge and are billed by the minute instead of by the hour.

Google, too, has been a major proponent of price cuts in cloud as a key driver for its platform. The company didn't cut prices last week but did respond in its own blog post promoting its compute resources as anywhere from 15% to 41% cheaper than AWS even after this latest round of cuts.

In the end, a price cut or the lowest price per VM does not automatically translate to savings versus another vendor because it all depends on the requirements of the application, Rogers said.

It's "a nightmare for consumers," Rogers said, when "a cloud provider says one thing and the competitor says another -- but they're talking about price and not performance."

Moreover, it's impossible to say just who is the cheapest on the market based on VM prices, because there are other components that go into cost, including bandwidth, managed services, databases, bare metal versus VMs and many other factors, Rogers pointed out.

"[Pricing] is really just a tiny percent of all the potential services in every cloud," he said.

Trevor Jones is a news writer with TechTarget's data center and virtualization media group. Contact him at tjones@techtarget.com.

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