Amazon, Google Cloud Price War Benefits CIOs

It looks like an all-out price war is coming in the cloud.

As the WSJ noted Thursday, Inc. (AMZN -10.15%) said price cuts to the cloud computing services division Amazon Web Services were to blame for a slowdown in the unit’s overall revenue.

Amazon said it has cut service prices by between 28% and 51% for various AWS services. It’s part of an ongoing price war and greater competition against Google Inc. and Microsoft Corp.MSFT +0.18%, both of whom have been happy to match AWS price cuts with their own. Microsoft on Tuesday noted a 147% jump in commercial cloud revenue in the quarter ended June 30, led by Office 365 and Azure products.

For CIOs, the so-called race to the bottom in cloud pricing is a good thing. “This price war is a fantastic thing, since it is lowering prices without impacting the quality of service,” says Gartner analyst Lydia Leong. Multiple large vendors pushing cloud is helping expand the market more quickly, she said, and the price cuts are increasing the velocity of cloud adoption.

CIOs should anticipate continued price declines from the big vendors, she said. “The infrastructure resources themselves will be commodities.” The providers will likely continue to offer highly differentiated offerings as well. “Internal IT organizations will find it very difficult to compete with the capabilities delivered by these providers, particularly at the price-point that will be offered.”

As CIO Journal wrote in May, larger companies have moved to cloud office productivity services like Office 365 more slowly than many initially expected, citing security concerns, regulatory issues and agreements with cloud vendors. Nevertheless, cloud computing continues to gain traction in the enterprise.In an April report, Forrester Research Inc. projected the global public cloud market would rise to $191 billion by 2020, with cloud applications leading the way.

Although the price cuts brought down Amazon’s revenue, “I wouldn’t read this as the cloud platform market slowing down; it’s certainly not,” Forrester analyst James Staten said in an email. For CIOs, “it’s definitely good because competition breeds better innovation and consistency in offerings.” Amazon CFO Tom Szkutak said Thursday that AWS usage was up 90% year-over-year.


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