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New public cloud pricing models sweep the enterprise

Price cuts are common in the public cloud market, but some experts wonder if they are still the true driver for adoption.

Cloud providers kicked off 2016 with numerous price cuts and new cloud pricing models. Big vendors such as Amazon Web Services, Azure and Google are reducing prices on older technology to make way for newer products, such as reserved instance types, as well as trying to get enterprises to move to cloud.

"Competitive cost cutting in cloud comes in cycles and it seems Amazon and Microsoft have ushered into a new phase" says David Linthicum, SVP of Cloud Technology partners, a cloud consulting firm in Boston, during a recent podcast.

In his podcast, Linthicum talks with Joel Davne, founder and CEO at Cloudnexa, an AWS Premier Partner based in Philadelphia, about evolving cloud pricing models, as well as other topics, including Amazon Web Services (AWS) Scheduled Reserved Instances (SRI).

Are SMBs being left behind in cloud?

Wanting to go after the enterprise market, both AWS and Azure recently made price cuts that predominately benefit large businesses, Linthicum says. "They didn't really discount much in the past, but now they are providing deep discounts if enterprises are willing to make multimillion-dollar commitments to them."

AWS is doing this with some of its reserved instance types, and Azure is "following suit" with recent VM price reductions, he adds.

I don't think pricing alone is really driving that much behavior.
Joel Davnefounder and CEO at Cloudnexa

But while these recent cuts don't provide much incentive for smaller organizations to move to the cloud, such discounts are not the only reason for cloud adoption -- especially for small and medium-sized businesses (SMBs).

"I don't think pricing alone is really driving that much behavior," Davne says.

While cost may no longer be the main driver for cloud adoption, it is still "very difficult" to calculate "soft costs, such as the value of agility, and time to market" into TCO, Linthicum says. [9:27 - 13:36]

Are businesses embracing, or resisting, cloud pricing models?

In respect to paying cloud bills, Davne says many financial teams now feel empowered because of the control that cloud pricing models provide. Operating in the cloud allows them to understand more about what they are paying for due to easy visibility and cost tracking.

On the other hand, "utility pricing becomes a little bit scary for enterprises because they're concerned that their need is going to become fairly elastic and people can reserve [or] basically provision as many instances of servers as they need and suddenly the bill is ten million bucks," Linthicum says. To prevent this and make people more comfortable with cloud, some cloud vendors are considering "all-you can-eat" cloud licenses that users can pay for upfront, he adds. [18:41 – 20:25]

Will new pricing options for AWS Scheduled Reserved Instances complicate things for users?

AWS SRIs enable customers to reserve capacity on a recurring basis with a daily, weekly or monthly schedule over the course of one year. These instances benefit companies that run mission-critical applications that are predictable, such as a payroll business that conducts most of its processing on Friday afternoons. These particular AWS reserved instances cost up to 10% less than On-Demand Instance prices. But "are we going to have, like, 200 different pricing models depending on the organization and who you are?" Linthicum asks.

While customers like having options, it can be confusing at times to navigate them all, Davne says. "We have a lot of deep, thoughtful conversations with our customers about pricing options already," he says. "It's complicated."[22:04 – 26:12]

Next Steps

DevOps and IoT are cloud trends to watch in 2016

Azure starts 2016 with cloud price cuts

Devise a cloud cost optimization plan

This was last published in March 2016

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