How Google is reinventing cloud pricing

Google is trying to change the economics in the cloud to capture more workloads

Last week Google released a feature called "Sustained Use Discounts," the idea of which is that the more customers use Google's Cloud Platform, the less expensive it becomes.

Industry watchers proclaimed the move an innovation because it could help debunk one of the criticisms of clouds economics: That once workloads get to a certain size, it’s better to run them in-house instead of in the cloud. Offers like Google’s Sustained Use Discount could dispel that notion, which means more workloads could not only go to the cloud, but stay there. “This is probably the most innovative move by Google on the commercial side of the public cloud since a long time - if not ever,” wrote Holger Mueller, a vice president at Constellation Research and a cloud industry watcher.

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Traditional thinking in cloud computing has been that the IaaS cloud is best for variable workloads, meaning the application frequently increases and decreases the amount of resources it needs. The cloud is seen as a good fit for these workloads because users can scale capacity up and down.

But what about static, non-variable workloads? If the workload does not have as much variance, it could just be cheaper to buy the servers and hardware and run it on your own premises. Cloud vendors such as Google obviously don’t want to just host variable workloads, they want to make it economical to host stable ones, too.

That’s where the Sustained Use Discounts come in. Here’s how it works, as explained in this Google blog post: “When you use an instance for more than 25% of a month, Compute Engine automatically gives you a discount for every incremental minute you use for that instance. The discount increases with usage and you can get up to a 30% net discount for instances that run the entire month.”

After 25% usage in a month, each incremental minute of usage is 80% of the base rate. If you use Google’s platform for 75% to 100% of the month, those minutes are 40% of their base rate. Meanwhile, Google reduced the prices of its base rate this week as well.

“There are numerous cases of software vendors starting out in the public cloud, but once loads have stabilized, moved their load to an on premise, dedicated data center environment,” Mueller notes in his review. “Google (and all other public cloud vendors) don’t want to see that – so major credit to Google for making this commercially less attractive to do.”

Amazon Web Services has its own way of rewarding high-volume customers, which it calls Reserved Instance Volume Discounts. The program works by automatically applying discounts to customers based on the total amount of money spent in AWS’s cloud in a given region.

AWS explains it as follows: “As soon as you have active Reserved Instances with total list price of upfront fees totaling more than $250,000 in a single AWS Region, you will automatically receive a 10% discount on both upfront and hourly fees for all future Reserved Instance purchases in that AWS Region, and those discounts will continue to apply to new Reserved Instances as long as you continue to qualify for the discount tier.”

For both companies, customers have to be using the cloud a lot to get a discount. In Google’s case, 25% of the month, in AWS’s case it’s more than $250,000 worth of spend.

Analysts like Mueller say this practice is about more than just offering customers loyalty discounts. It’s about changing the profile of workloads that make economic sense to run in the cloud. Making cloud pricing more competitive with on-premises hardware for static workloads will chip away at price being a reason not to use the cloud.

In reality, though there are many factors beyond just price as to why a company will or will not use the cloud. Factors such as security, architecting applications for the cloud, integration of cloud systems with existing workloads and a host of other considerations still need to be taken into account.  

Senior Writer Brandon Butler covers cloud computing for Network World and NetworkWorld.com. He can be reached at BButler@nww.com and found on Twitter at @BButlerNWW. Read his Cloud Chronicles here.  

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