Amazon slashes cloud prices ahead of re:Invent

Cloud price declines, it turns out, are not over

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The week before Amazon Web Services kicks off its annual re:Invent user conference the company has cut prices of its two biggest products: virtual machines and object storage.

The moves come as some analysts have noted that cloud price cuts have slowed in recent years. Price cuts are not dying though, as AWS’s moves from the past few weeks show.

On Nov. 14 AWS announced between 5% and 10% reductions in the cost of Amazon Elastic Compute Cloud (EC2), it’s core virtual machine IaaS product, effective Dec. 1.

This week, the company announced between 20% and 28% reductions in Amazon Simple Storage Service (S3), also effective Dec. 1. Before the EC2 price reduction this month, that service’s price had not been reduced since January 2016.

Just a few years ago price cuts were a regular occurrence in the cloud. Amazon, Microsoft and Google sometimes responded to one another’s price cuts within hours of each other.

In somewhat of an ironic twist, just hours before Amazon announced its latest EC2 price cut, analysts at Deutsche Bank Equity Research published a primer on AWS Cloud Pricing, outlining how the number of price cuts has declined markedly in the past two years. The slowing of price cuts, DB says, could be contributing to healthy margins for cloud vendors. “Unit pricing is declining steadily, but the margin profiles of at least AWS and Azure are improving given a combination of strong volume growth and internal cost efficiencies,” the analysts note. DB notes that Azure, AWS and Google all are experiencing strong growth despite the slowdown in price cuts. “Bottom line, the relatively rational pricing behavior of AWS supports our confidence in (the cloud computing) mega-trend and the margin improvement trajectories at all three cloud vendors,” DB notes.

So will cloud price cuts continue? AWS Chief Evangelist Jeff Barr noted in a recent blog post that: “Our engineering investments, coupled with our scale and our time-tested ability to manage our capacity, allow us to identify and pass on the cost savings to you.”

As for Microsoft, Executive VP Scott Guthrie recently said, “For the most part, we (Azure and AWS) aren’t competing on price. It’s typically we’re competing more in value, I would say at this point. Which is a difference versus, say, two or three years ago, where I think it was more about cost per VM (virtual machine) or cost per storage.”

That doesn’t mean price cuts will stop, but it also doesn't seem we’re in the middle of a price war in the cloud analogous to mid 2014.

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