Cloud Money

Beyond Cloud Price Cuts: Why Services will be the Strongest Weapon in the Cloud War

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Back in April, Google announced it was slashing its cloud storage prices by 68 percent, giving users a gig of data for around two and a half cents. Since then, a cloud price war has erupted, and has been compared to historical price wars like the gasoline industry in the 1960s. A subsequent round of cuts by Amazon, CenturyLink, and many other providers fleshed out the story of giant providers battling each other, possibly to the death, by leveraging their scale.

But do these price reductions really amount to a “cloud infrastructure price war,” as 2nd Watch suggests? Peak co-founder and CEO Luke Norris doesn’t think so.

“I believe that to be wholly inaccurate,” Norris says. “We see it as cloud service wars, with the battle being fought for the application and the developer. If a company codes their app to a particular API or messaging layer, the service provider has won the war. Take for example a customer’s use of enterprise apps that need a service of high availability and consistent performance not centric to the app but despite it delivering a fundamentally different service. Price is just a weapon in the app war.”

Rackspace CTO John Engates put a similar emphasis on the necessity of considering the service element in a blog post in May. In the post, Engates says, “The difference is that cloud infrastructure only works when it’s delivered as a service. It’s not a physical product that you put in a box and ship. This difference has confused many cloud customers. They need to compare commodities wrapped in services rather than just the commodity infrastructure components themselves. Otherwise, they’re comparing apples to apple pies.”

Comparing infrastructure providers as apples to apples is no simple exercise, as the cloud services provided by Google and AWS are targeted at a different market than those of many infrastructure providers.

“(If) you are a corporation with enterprise-class apps, environments, and requirements, you would never look to Google for IaaS,” Norris says. “The price war between Google and AWS does not affect Peak. Peak’s cloud is engineered for HA enterprise-class Tier 0/1 workloads and thus an entirely different customer set.”

Norris says that Peak’s customers do not pay a premium for clouds handling those workloads. Prices are falling across the entire industry, but not because the companies are getting bigger, or more desperate for market share.

“I think price is being driven down by Moore’s Law and the ability for the companies of size to adjust pricing as size and speed increase exponentially. Any company that has a strategy and or size to purchase in rapid increments of a decent volume can take advantage of these trends,” Norris says. “Peak Partners can offer pricing (via resell or white-label) below the list price of hyper-scale providers such as AWS. However, it is important to note that Peak’s storage service is different than Google and AWS. Our SLAs, and deep access/control into the storage is designed for Enterprise customer needs.”

But if technological advancement like Moore’s Law and “decent” purchasing volume are enough to drive prices down, surely they have been falling all along. Despite the headlines implying that something has fundamentally changed, price cuts since Google’s big announcement are very much in line with the history of cloud services.

Amazon has cut its cloud computing prices more than 40 times since 2008. IaaS provider ProfitBricks slashed cloud prices a year ago and aligned them directly to Amazon.

If infrastructure price inevitably falls, then finding the absolute lowest price involves aiming at a moving target. The best value over time depends on the type of service, the performance and capacity, SLAs and ease of use, and how well matched the services are to customers.

Peak reaches those customers exclusively through channel partners, which allows Peak to focus on providing the best enterprise service for the price, while partners match customers to the best possible service, Norris says.

“Our channel partners work directly with end customers to scope, size, design and price the cloud service. The channel partner typically understands their customer very deeply with long-time, very close relationships and intimate knowledge of their customers,” he says. “They become the IT expert helping companies find the best service and pricing to meet their specific needs.  As cloud services become more understood I envision a multi-cloud approach that leverages multiple clouds, multiple services and pricing structures. The channel partners and the general role of the value-added reseller will change from helping select and deploying on premise technology to help in selecting and managing cloud services.”

It appears that the more things change, the more they stay the same.

Cloud services are not necessarily comparable for cloud service customers. Developers are driving a large portion of the market, but enterprise cloud spend is expected to top $174 billion in 2014 and $235 billion in 2017, according to IHS Research. That means many different kinds of cloud service providers will have room to compete for enterprise customers. The challenge for those providers is not just providing the right price, but also offering the right cloud.

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