IN 2004 Amazon, then a $7 billion-a-year online retailer, was starting to build up a technology infrastructure to serve other companies as well as itself. Ten years later, Amazon Web Services (AWS), launched in 2006, is adding enough servers and other gear every day to power the Amazon.com of ten years ago. This breathtaking investment has kept AWS the market leader in the expanding business of cloud computing, which allows firms to lease storage and processing capacity from others, rather than buy and maintain their own servers and data centres. The cloud promised to be revolutionary: it would be cheaper, would keep software more up-to-date and would encourage more collaboration.
But big companies have embraced the cloud more slowly than its fans had expected. IDC, a research firm, estimates that businesses will spend $100 billion on cloud computing this year. That is not to be sniffed at. But it is a fraction of the $2 trillion or so that companies will spend on information technology (IT). Some are holding back because their IT teams claim they can run things more cheaply internally. Others are wary of entrusting sensitive data to another firm’s servers.
Such corporate reluctance may soon start to be overcome, as price cuts make cloud computing cheaper still. At the end of March Google slashed prices by between 30% and 85% on cloud services such as application processing and data storage. The move—aimed at boosting Google’s own cloud-computing business—sparked a swift response from AWS, which cut some prices by up to 65%. Microsoft, which is also determined to be big in the cloud, followed suit with cuts of its own.
Prices are likely to fall further. “We’ve not gotten to the bottom of the curve yet,” says John Dinsdale of Synergy Research Group, which tracks cloud companies. Google likes to tell anyone who will listen that hardware costs for cloud providers such as itself have been dropping by up to 30% a year. “Every cloud provider will bend over backwards to match rivals’ prices,” says Samuel Chesterman, a chief information officer (CIO) of IPG Mediabrands, a media and marketing outfit.
Some clients are already taking advantage. In July Box, which lets people and companies store and share information online, scrapped all limits on storage for business customers. In a blog post announcing the move, Aaron Levie, Box’s boss, says it was able to take this step thanks to “an arms race of gigabytes” between Google, Amazon and Microsoft.
Lower prices should persuade more firms to follow Edmunds.com, a web service that offers information about cars to its 18m monthly visitors. Philip Potloff, the firm’s CIO, says the company is moving its computing to the AWS cloud and expects to save millions of dollars a year.
AWS and others are working overtime to reassure people that data will be secure in the cloud—a job that has been complicated by revelations that Western intelligence agencies have targeted firms such as Google and Microsoft as part of their online snooping. In response, big American cloud firms have stepped up their use of encryption to protect the data they handle. And they have made it clear that they are prepared to store more data locally for clients in other countries if laws require this.
Cloud companies are also jazzing up their basic offerings. In July AWS launched Zocalo, a service for storing and sharing documents which lets people get access to their material anytime and from anywhere. This week AWS expanded Zocalo further. Such additions make the cloud more appealing to firms, though they risk annoying customers of cloud computing such as Box, which offer similar services.
In spite of falling prices, better security and enhanced offerings, plenty of firms remain wary of committing all their computing needs to another company. Hence the popularity of so-called “hybrid cloud” computing. This involves running some software applications on a service such as AWS’s while keeping others on a firm’s own servers. A number of companies with substantial cloud-based businesses, such as IBM and Rackspace, are promoting hybrid offerings in a bid to compete with the likes of Amazon and Google.
For the next few years, hybrid cloud arrangements may well dominate, especially in industries such as health care and banking where companies like to keep some dedicated hardware of their own, to ensure they comply with standards laid down by regulators for handling sensitive data. But AWS and its rivals are steadily amassing approvals from regulatory and industry bodies to show they meet such standards, too. Assuming they can keep driving down costs further, their clouds look set to engulf many more firms.