AWS lowers prices for the 30th time, but do customers really care anymore?

Summary:As AWS cuts the price of its services for the 30th time have prices in the IaaS market bottomed out?

Since Amazon launched its public cloud service in 2006 it has lowered the cost of using the platform 30 times.

The gradual reduction in the price of renting virtualised servers and storage through its EC2 and S3 offerings has driven down the wider infrastructure as a service (IaaS) prices.

Amazon announced the latest drop in the price of its S3 storage service yesterday, lowering the cost of making GET requests by 60 per cent and halving the prices for PUT, LIST, COPY and POST requests.

Today AWS dominates the IaaS market, with its cloud services netting Amazon an estimated $700m in revenue in 2011 – about 20 per cent of the $4.23bn that Gartner said the "systems infrastructure" market was worth that year.

But do these price drops really make a difference to which IaaS a company chooses? Maybe not, according to Kyle Hilgendorf, research director in Gartner's service for technology professionals, who said the cost of IaaS has dropped to a point where they have less of an impact.

"Prices are getting to the point at which they're so low that these small repeated drops don't make an impact on buying decisions so much," said Kyle Hilgendorf, research director in Gartner's service for technology professionals.

In the case of the latest price reductions Hilgendorf said an organisation that was making 10 million PUT or GET requests to S3 in a month would only save somewhere in the region of $10 to $20.

"For a lot of enterprise companies seeing a virtual machine or object store price drop by a penny here or there doesn't make the difference as to whether they will buy it or not."

While AWS may have one of the most aggressive pricing strategies in the IaaS market, companies like Rackspace, Verizon Terremark or Savvis are competitive with AWS for price once you take into account the range of services they offer, Hilgendorf said.

"What we hear from customers is it's not so much about the price as it is about the features and functionality. If you look at Amazon it's their value added components above IaaS - the database features, whether RDS or NoSQL DynamoDB, their autoscaling, their elastic load balancing.

"Some of those things their competitors have, like Rackspace has some competitive products in these areas, but many competitors have not moved into that value added layer.

"When I talk to customers they say 'Price is important but we're willing to pay a little bit more if we can achieve the scalability or elasticity, or the provider has a bunch of features that nobody else in the market offers."

AWS' market dominance is about far more than price, agreed Laurent Lachal, who leads Ovum software group on cloud computing research.

"AWS is the elephant in the room. Its pricing defines the baseline for the whole of the market, however pricing is just one bit of a much bigger proposition that AWS brings to the market."

The bigger proposition referred to by Lauchal includes the strength and breadth of its business service offering. For example the multiple ways of renting EC2 instances, including the flexibility that comes from being able to choose between Reserved and Spot instances and the additional security from Dedicated instances.

"They have the largest portfolio of services in the market at the moment. They have from the beginning understood that public cloud is not just a technology delivery platform, but is also a business enablement platform."

AWS faces competition from a host of companies – not only the traditional managed service providers such as Rackspace and Savvis but new entrants like Microsoft and Google with their PaaS and more recently IaaS offerings, as well as large enterprise incumbents such as IBM and HP.

Sensitivity to price cuts vary among AWS' competitors, Lachal said that Google and Microsoft share AWS' ambition to provide cloud services for everyone, from the lone developer to the Fortune 500 company, so will tend to be more reactive to price changes, whereas other competitors like IBM and HP are less so.

A major opportunity for an IaaS competitor to AWS, says Lachal, lies in simplifying the process of buying from a portfolio of cloud services - to be clearer on the best options for cost or performance - an area that AWS is currently wrestling with.

"While Amazon is keeping its focus on price cuts, it's adjusting more and more to focus on large enterprise needs, it's making efforts to help its users understand and optimise their cost structure," said Lachal.

AWS' focus on streamlining the complexity of portfolio is reflected by its recent promotion of Trusted Advisor, its service that inspects AWS infrastructure and makes recommendations on where users could save money, improve performance, or close security gaps.

"It's important because AWS has a very, very large portfolio of services and the more services you use, the more complex your cost structure. Sufficiently large enterprises need to get on top of that cost structure, and it's not just about understanding the usage, it's also about optimising things like application design," said Lachal.

"This is where the other competitors need to catch up. They may not need to cut their price to the level that AWS has but they do need to allow the customer to understand and optimise their cost structure."

Amazon's price reductions to date:

Apr 22, 2008
AWS lowers data transfer costs – effective May 1

Oct 09, 2008
New tiered pricing for Amazon S3 Storage

Jan 28, 2009
New lower pricing tiers for Amazon CloudFront

Aug 20, 2009
New lower prices for Amazon EC2 reserved instances

Sep 30, 2009
New Lower Price for windows instances with authentication services

Oct 27, 2009
Announcing lower Amazon EC2 instance pricing

Dec 08, 2009
AWS announces pricing changes to S3 Storage Pricing Tiers, S3 EU pricing, EC2 Windows Instance EU pricing

Feb 1, 2010
AWS Announces Lower Pricing for Outbound Data Transfer

Jun 7, 2010
Amazon CloudFront lowers prices

Sep 1, 2010
New lower prices for high memory double and quadruple XL instances

Oct 5, 2010
Lower high memory DB instance prices for Amazon RDS

Nov 1, 2010
New lower prices for Amazon S3

Jan 6, 2011
Lowers usage prices by 50% on existing support plans

May 10, 2011
Lowers prices for Amazon EC2 monitoring

June 30, 2011
AWS announces new data transfer pricing, effective July 1, 2011

Sept 27, 2011
Amazon Route53 lowers the pricing for hosted zones

Dec 21, 2011
AWS reduces Amazon Elastic MapReduce pricing for cc1.4xlarge Instances

Feb 6, 2012
Amazon S3 announces new lower prices for standard storage

Mar 5, 2012
New, lower pricing for Amazon EC2, RDS, and ElastiCache

Jun 13, 2012
AWS support expands free tier, adds new features, lowers prices

Nov 01, 2012
AWS lowers price of EC2 M1 instances by over 18%

Nov 05, 2012
Amazon CloudSearch announces free trial program and a price reduction

Nov 07, 2012
AWS reduces the price of Amazon RDS and Amazon ElastiCache

Nov 28, 2012
AWS Lowers the price of S3 by 24-27%

Feb 01, 2013
AWS lowers the price of EC2 and lowers the price of bandwidth pricing

Feb 14, 2013
Amazon RDS reduces the price of Multi-AZ deployments

March 01, 2013
Amazon lowers SQS pricing by 50% and SNS pricing by 17%

March 05, 2013
Amazon lowers prices for Reserved Instances by up to 27.7%

March 08, 2013
Amazon lowers prices of DynamoDB by up to 75%

April 03, 2013
AWS lowers price for Amazon S3 request pricing

Topics: Cloud, Data Centers

About

Nick Heath is chief reporter for TechRepublic UK. He writes about the technology that IT-decision makers need to know about, and the latest happenings in the European tech scene.

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