This story was written by Keith Dawson for UBM DeusM’s community Web site Business Agility, sponsored by IBM. It is archived here for informational purposes only because the Business Agility site is no more. This material is Copyright 2012 by UBM DeusM.

Cloud Prices Coming Down to Earth

Three of the big four cloud providers have dropped prices in recent weeks.

Amazon lowered prices on its cloud services; Google and Microsoft quickly followed suit. The details vary as to what kinds of applications and what levels of customers will save money.

This is likely to be good news for IT shops managing or considering cloud deployments, but not for VARs, which are looking at having to reduce their annuity projections.

On March 5 Amazon announced the nineteenth price cut since 2006 for its cloud computing services: specifically for Elastic Compute Cloud, Relational Database Service, ElastiCache, and Elastic Map Reduce. Amazon stressed that savings would particularly accrue to their largest customers. Google followed suit the next day -- they must have had a price cut ready to go and rushed it out following Amazon's announcement. Two days later Microsoft made it a hat trick, announcing price cuts especially for users at the small end of the scale.

Some analysts speculate that the price cuts came as cloud providers were meeting price resistance, with potential customers discovering that cloud deployment scenarios weren't going to save them much money, or any at all, over building in-house capacity. An easier explanation is that Amazon, which kicked off this phase of the ongoing cloud price war, is playing the long game as it usually does. Amazon is far and away the leader in the cloud storage and computing market -- GigaOm figures that Rackspace, Google, and Microsoft follow in that order -- and they are looking to grow their volume, and their lead, still further. Amazon also wants to put more pressure on the giants gearing up to compete in the cloud space: IBM (sponsor of Business Agility), HP, VMWare, and possibly Facebook.

Amazon's margins on its cloud business are around 10 percent, according to Gartner analyst David Smith, quoted in SFGate. This is higher than margins for its retail business. Microsoft, by contrast, is accustomed to 60 percent margins on its Office and Windows lines of business, and might have less stomach for a protracted battle over margins in the single digits.

Devils and details
Not only the prices, but the pricing structures and strategies differ among the cloud providers. Under some of the pricing models, for example those of Amazon and Google, pricing can vary depending on what types of operations a deployed application performs -- not just on the storage space, bandwidth, and processor specifics of the deployment. Amazon charges one cent for each 1,000 PUT, POST, COPY, and LIST transactions (for Google: PUT and POST), but just one-tenth as much for GET transactions (for Google: GET and HEAD).

Microsoft charges one cent per 10,000 transactions no matter the kind.

Rackspace, the only provider in the top four not to lower its prices, charges more per gigabyte of storage than the others, but does not impose fees on any types of request transactions.

If you are about to embark on a cloud deployment, the moral is: model your applications carefully, and pin down all of the tiny details of the pricing structure for each vendor on the shortlist. Amazon and Microsoft offer online calculators that will help with some parts of this modeling, but the ones I found don't include the per-transaction costs mentioned above. Google doesn't have an interactive calculator that I could locate, but its pricing page seems to be comprehensive.