Why Did Amazon Cut Cloud Computing Rates? Part I

Why Did Amazon Cut Cloud Computing Rates? Part I

Why Did Amazon Cut Cloud Computing Rates? Part I

Last month, Amazon had announced a considerable reduction in S3 cloud storage rates. Effective 1 February 2012, the following rates apply in the US Standard region:

Information on rates for other regions – US West (Oregon), US West (Northern California), EU (Ireland), Asia Pacific (Singapore), Asia Pacific (Tokyo) and South America (Sao Paulo) – are available at http://aws.amazon.com/s3/#pricing. The Sao Paulo operations are a recent addition to the Amazon portfolio (See: Amazon Expands Cloud Footprint with Brazil Operations).

According to Amazon, this price decrease translated to a 12% reduction in costs for customers with about 50TB of data, and a 13.5% drop for customers with about 500TB. However, it is noteworthy that larger consumers were not extended this largesse. However, Amazon has tried to rectify this differential treatment of larger clients with the recent cut in EC2 pricing (details available at http://aws.amazon.com/ec2/pricing/).

The blog post makes it clear that Amazon is keen to keep its bigger customers happy. “Today, we’re enabling customers to save even more as they scale – by introducing Reserved Instance volume tiers.  In order to determine what tier you qualify for, you add up all of the upfront Reserved Instance payments for any Reserved Instances that you own. If you own more than $250,000 of Reserved Instances, you qualify for a 10% discount on any additional Reserved Instances you buy (that discount applies to both the upfront and the usage prices).  If you own more than $2 Million of Reserved Instances, you qualify for a 20% discount on any new Reserved Instances you buy.  Once you cross $5 Million in Reserved Instance purchases, give us a call and we will see what we can do to reduce prices for you even further – we look forward to speaking with you!”

Getting back to the question posed in the title to this article, the answer seems obvious – to attract more business. The initial differential treatment accorded to different tiers of users deserves a closer look. I had explored this angle on earlier articles dealing with attractive schemes for startups (See: Why is Rackspace targeting Startups?  and Ninefold and Rackspace Battle for Australian Startup Mind Space).

The opportunity to “catch them early” is an attractive proposition, and the fact that smaller companies are more willing to explore the cloud option lends credence to this strategy. Combine these with the fact that smaller businesses seem better poised to enjoy the benefits of the cloud (See: Which Type of Businesses Benefit Most from Cloud Computing?), and this price cut may be the encouragement they needed to make the switch. However, this favoritism towards smaller players risked alienating Amazon’s larger clients. Ergo, the second price cut which soon followed.

Part 2 to follow next week...

By Sourya Biswas

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