Cloud economics improving for users in wake of price cuts

IDG News Service - Cloud computing price cuts by Google, Amazon and now Microsoft may indicate that businesses are discovering that moving to the cloud doesn't always save costs.

On Friday, Microsoft dropped the price on its Azure Storage Pay-as-you-Go service and lowered the price of its six-month storage plan. The cost to use Azure Extra Small Compute has dropped in half.

Earlier this week, Google cut the price of its Cloud Storage service and Amazon Web Services dropped prices on Elastic Compute Cloud, Relational Database Service, ElastiCache and Elastic Map Reduce. Amazon highlighted how the new price cuts will particularly reduce costs for big businesses.

The price cuts come as the service providers try to convince potential new customers to move to the cloud model, one expert said.

"The myth is that cloud computing is always cost-effective," said David Linthicum, CTO of Blue Mountain Labs, a company that advises businesses on moving to the cloud. "In many instances, it's not."

Service providers like Amazon are likely hearing this from potential customers, he said. "They're losing on deals where people are going to buy hardware and software because it's cheaper than leasing their services," he said. "They're reacting by reducing price to capture market."

Amazon, Microsoft and Google are likely willing to drop prices quite a bit, he said. The cloud services are not a primary business for any of the companies, he noted. Plus, once any of them wins a customer, they have a good chance of holding on to the customer for a long period of time because it's difficult for users to switch cloud service providers. For those reasons, Linthicum expects plenty of additional price drops in the future, he said.

The cuts could point to other issues in the market, another analyst said. "They probably signal a developing overcapacity problem in the market for basic public cloud hosting," said Marc Brien, vice president of research at Domicity, a consulting and analysis company.

The continued price cuts by Amazon -- this is its 19th price reduction -- indicate a strategy of trying to drive away competition. "They likely have the most favorable cost structure of anyone in the public hosting industry and want to force a rationalization of the industry in their favor by putting up prices that make the whole thing unappealing and unprofitable for anyone else," Brien said.

Microsoft, Google and Amazon may also be bracing for the near future when other big companies with deep pockets, like Hewlett-Packard and telecommunications providers, enter the market, he said.

Nancy Gohring covers mobile phones and cloud computing for The IDG News Service. Follow Nancy on Twitter at @idgnancy. Nancy's e-mail address is Nancy_Gohring@idg.com