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Are cloud price reductions sustainable?

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During this last month a notable trend continued; the price of cloud computing – infrastructure and platforms – continues to head in one direction only. Downward.

At their event in San Francisco recently, Google announced a series of huge price cuts for its services for running software applications and websites and storing large quantities of data.  Just one day later, the market leader Amazon Web Services (AWS) unsurprisingly followed Google’s lead by unveiling a raft of price cuts for its own popular cloud services.

The major player in the industry slashing prices, and a huge pretender to the throne such as Google doing the same, will have a big practical impact on the adoption of cloud services in the near future.

AWS will now be 30 to 40 percent cheaper after Amazon’s recent decision. Meanwhile, Simple Storage Service “S3” , its object-based online file storage, will be price cut by over 50%.  And Amazon’s data anlaysis service, Elastic MapReduce, will see price cuts as large as 61%.

This represents a massive sea change in the cloud landscape. There has been growing momentum in the provision of cloud services for some time, but the major player in the industry slashing prices, and a huge pretender to the throne such as Google doing the same, will have a big practical impact on the adoption of cloud services in the near future.

Amazon has always indicated with regard to its cloud services that it was running a low-margin business, which seemed entirely plausible based on the fact that it is well known that this does apply to their core retail business. But this recent willingness to slash prices related to its cloud services indicates that this claim was probably a tad misleading. What this means for cloud in the future is that competitors to Amazon will be feasibly able to cut their costs as well. When this will happen remains to be seen.

This recent willingness to slash prices related to its cloud services indicates that this [low-margin] claim was probably a tad misleading.

This will obviously mean that cloud computing becomes a much more viable proposition for many businesses in the near future. In that sense, this decision by Amazon and Google can be seen as a red letter day in cloud computing, as it may well be looked back on as the point at which cloud computing made its big breakthrough into the mainstream. In addition to Google and Amazon’s price cutting, Google has also in accordance announced its decision to harmonise its cloud computing business to a single entity.

Meanwhile, as Amazon and Google make aggressive moves in the marketplace, Microsoft has also made significant cloud-related moves just recently, offering Office for the Apple iPad. This seems to be entirely intended to induce more people to purchase its cloud-based Office 365 product. Intel have also recently stated that they will invest $740m in Cloudera; a move that will establish Intel as a market leader with regard to carrying out big data analysis in the cloud.

Finally, Cisco has announced that it will invest $1 billion in cloud computing in the short-to-medium term in an attempt to catch up with its rivals in the cloud.

Perhaps none of these announcements in and of themselves can be considered a shockwave. They were all logical moves, and some of them could even have been predicted. But what they do show is that massive corporations that are intrinsically associated with ‘conventional’ computing are taking the cloud more and more seriously, and acknowledging that it will be key to their business models from this point on.

In light of such huge investment, one has to wonder whether the price reductions we are seeing are sustainable, or simply a short-term initiative to grab market share?  You could be even more cynical and argue that these price reductions are there to build the cloud market, in a move to prove to investors that such colossal capital investment is indeed worthwhile?!