Why Did Amazon Cut Cloud Computing Rates? Part II

Why Did Amazon Cut Cloud Computing Rates? Part II

(Continued from Part I)

Of course, the explanation behind the price decrease may be as simple as economies of scale. After all, the amount of data stored in S3 did triple in 2011, marking its fastest year of growth since 2006. At the same time, the challenge posed by smaller, yet rapidly growing rivals cannot be discounted. Hence, this move may also have been to leverage its first-mover advantage to stave off competition. Even with the more recent EC2 price decreases, Amazon has described it as passing on cost savings to its customers.

Amazon’s Jeff Barr wrote: “As we continue to find ways to lower our own cost structure, we will continue to pass these savings back to our customers in the form of lower prices. Some companies work hard to lower their costs so they can pocket more margin. That’s a strategy that a lot of the traditional technology companies have employed for years, and it’s a reasonable business model. It’s just not ours….

Another thing that I would like to bring up is Amazon founder Jeff Bezos’s strategic line of thinking. As history shows, Bezos plans for the long term, even at the cost of short term losses. Amazon posted its first profit, a mere $5 million, in Q4 2001 – seven long years after launch. To the chagrin of its shareholders, it spent a lot of money building up its distribution network and technical interface. In time, those investments paid off handsomely. Today, it is one of the most recognized companies on the planet, with sales of $48 billion (2011) and a net income of $1.2 billion. Similarly, today Amazon Web Services comprise only a small portion of its portfolio. But it is growing rapidly, and promotional measures such as price cuts can help consolidate its position at the top of the cloud computing table.

By the way, Amazon rival Google has not taken this lying down and responded with major cuts of its own. The company now offers Google Cloud Storage at rates slightly lower than Amazon S3. The new pricing, effective retroactively from March 1, 2012, starts at $0.12 up to a terabyte (TB), down from $0.13 up to a TB. The next 9TB of storage now costs $0.105 per GB, down from $0.12 per GB. Additionally, Google also offers a free trial quota until June 30, 2012.

This quota is only applicable to the client’s first project that uses Google Cloud Storage and gives them free usage of resources within that project, up to:

  • 5 GB of storage
  • 25 GB of download data (20 GB to Americas and EMEA; 5 GB to Asia-Pacific)
  • 25 GB of upload data (20 GB to Americas and EMEA; 5 GB to Asia-Pacific)
  • 30,000 GET, HEAD requests
  • 3,000 PUT, POST, GET bucket, GET service requests

Further details are available at Google.

The cloud computing customer will surely say, “Let the price wars continue.

By Sourya Biswas

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