Cloud Price War – What’s at Stake?

By Jon Winsett

CEO, NPI

April 23, 2014

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It’s not often that IT vendors cut prices – much less slash them. But, that’s exactly what’s happening in the world of cloud computing, and a price war between Microsoft, Amazon and Google seems to be heating up. In the last month, Microsoft has cut its Azure prices by 27 to 65 percent; Amazon has announced a broad price decrease on parts of its Amazon Web Services offering by 36 to 65 percent; and Google has announced a whopping 32 to 85 percent decrease for its Google Cloud Platform.

If you’ve been debating whether or not to extend your IT infrastructure into the cloud, these price cuts are game-changers. For some, the potential savings will overcome the risks and long-term cost concerns that have prevented cloud migration. CIOs are changing their tune from “Is it worth it?” to “Can we afford NOT to move more to the cloud?”

But, that doesn’t mean IT and sourcing professionals shouldn’t be cautious. Microsoft, Google and Amazon may be sacrificing margin for market share, but it’s safe to assume they will be protecting margins regardless of price changes.

If you’re considering AWS, Google Cloud or Microsoft Azure, consider the following:

Your SLA is more important than ever. Attractive pricing means more companies will be flocking to the cloud, and providers’ hosts can easily become overloaded with more virtual servers. Will Amazon, Google and Microsoft be able to handle this influx without impacting service performance and reliability?

Expect more add-on costs. As more pricing/service tiers emerge, new basic-level pricing options may not include the same capabilities as provided in the past.

Keep an eye on support and customization costs. Cloud providers have always protected margins through support fees and customization costs. Will providers increase fees in these areas to compensate for the recent price cuts? It’s very possible.

Be wary of long-term commitments. Is this the last price cut? Probably not. Signing a long-term commitment now may lock you in at prices that preclude you from benefitting from price cuts announced down the road.

Lastly, be mindful that vendors never take prices to the ground floor. There is still room for improvements in pricing and business terms for companies that bring benchmark knowledge and vendor intel to the negotiation table.