Cloud prices: How low can they go?

Competition has led to 29 price reductions in 14 months among big-four cloud providers

Infrastructure as a service (IaaS) cloud providers are battling in a price war that has seen 29 price reductions by the four major providers during the past 14 months, a trend industry analysts expect to continue.

RightScale, which acts as a cloud gateway to various providers, released an analysis of more than a year's worth of data related to price reductions and found that Amazon Web Services (AWS) had the most price reductions compared to Google Compute Engine, Microsoft Azure and Rackspace.

AWS had eight reductions during the 14-month period on core services, including compute, storage and bandwidth, along with another 11 reductions on non-core services such as database services, messaging, search and caching. By comparison, Rackspace had four core reductions, while GCE and Azure each had three.

"With all these changes, the price/performance value of cloud IaaS gets increasingly more attractive," RightScale says in its press release.

[ CLOUD SHOWDOWN: Amazon vs. Rackspace (OpenStack) vs. Microsoft vs. Google ]

So how low can prices go? Some providers are already offering services for the ultimate low price: free. AWS, for example, has a free usage tier in which customers can use up to 750 hours of Microsoft or Linux micro-sized virtual machine instances, along with 30GB of Elastic Block Storage (EBS), and 5GB of its Simple Storage Service.

"The pricing war is going to continue all the way to the bottom," says Krishnan Subramanian, principal analyst at boutique firm Rishidot Research. "Companies like Amazon and Google will have the advantage due to economies of scale. If history is any indication, Amazon will go to any level to undercut the competitor pricing. Service providers who don't have the economies of scale will try to add additional value on top of infrastructure to avoid going down this slippery slope."

Some believe service providers will continue to lower prices, even to the point of offering services for free, with the goal of luring customers into placing their data in their clouds and then making it expensive, or difficult to get the data out. In AWS's cloud, for example, it's free in many services to upload data to its cloud, but costs money to take it out.

Cloud providers use price reductions as a way to grab headlines, according to analysts at Technology Business Research Inc. So, while it may sound nice that AWS is reducing prices every few weeks or months, RightScale points out that many of those price reductions are on subsets of the company's services, and therefore impact a limited number of customers. For example, RightScale says two-thirds of cloud services it helps customers deploy involve compute resources, but only 23% of the price reductions by the major providers were on compute services.

"Compute and storage, the most mature services, saw smaller reductions than newer cloud services like database," says Kim Weins, RightScale's VP of marketing. "This could indicate that cloud providers have already squeezed more efficiencies in these areas, and future price reductions may be smaller." Still, Weins predicts that cloud prices will continue to fall for the foreseeable future, especially as hardware prices continue to drop, scale increases and providers become more efficient in running their services.

As a comparison, AWS's default virtual machine (VM) size costs $0.06 per hour for Linux machines and $0.15 per hour for Windows machines, and come with 1.7GB of memory and 160GB of local disk space. Rackspace has a 1GB VM with 40GB of local disk for $0.06 per hour, or a 2GB memory machine with 80GB of local disk space for $0.12 per hour. Google Compute Engine's default VM has 3.75GB of memory and 420GB of local disk space and costs $0.138 per hour, while Microsoft Azure has a standard 1.75GB VM for $0.08 per hour.

Perhaps the cloud wars hit a head late last year where during the course of 11 days three of the major cloud providers each dropped their storage prices by one-third. On Nov. 26 Google announced a 20% reduction in its storage costs, on the eve of Amazon's first-ever user conference, named re: Invent. During the conference three days later, AWS dropped its storage costs by 25%. That same day Google announced another price drop of 10% more. Not to be outdone, a week later Azure dropped its prices 22%. The back and forth points to the jockeying cloud providers mangle with one another, and the fight for headlines when one company makes an announcement.

RightScale released the study in conjunction with PlanForCloud, a cloud cost forecasting service that the company bought last year. Customers input their expected cloud usage and the system predicts how much it will cost across different providers.

Network World senior writer Brandon Butler covers cloud computing and social collaboration. He can be reached at BButler@nww.com and found on Twitter at @BButlerNWW.

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