Nobody Can Win The Cloud Pricing Wars

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Earlier this week, Google lowered prices 10 percent across the board on their Google Compute Engine cloud platform . The cost is getting so low, it’s almost trivial for anyone to absorb the costs of running infrastructure in the cloud, but you have to wonder as the cloud pricing wars continue, how low can they go and if it’s a war anyone can win.

The end game is obviously zero, but these companies have overhead and while the Big Three cloud computing companies –Google, Amazon and Microsoft –run their Infrastructure as a Service as a side business, chances are their stock holders don’t want to see them giving it away for nothing, a point we seem to be approaching quickly.

Just this week, Oracle shocked the world (or at least me) when it announced it would lower its Database as a Service pricing to match Amazon’s. This is Oracle we’re talking about, a company known for its high prices joining the pricing wars. It’s one thing for the Big Three to engage in this type of activity, but for a traditional enterprise software (and hardware) company used to high profits, it’s startling.

It shows the state of cloud pricing these days. While most Software as a Service vendors like Salesforce, Box, Zendesk and Workday don’t appear to be engaged in this type of price slashing, the infrastructure players are all in on the price cutting game and as the downward pressure continues, you have to wonder what if anything will cause them to pull out.

In spite of the low prices, there are still plenty of companies talking about the cloud with disdain and fear, but the fact is how long can CIOs ignore pricing as it goes this low? It doesn’t make good business sense, and whatever risks a large enterprise believe they might face with cloud services, it has to be offset by the plunging costs.

The devil is always in the details of course. You move some infrastructure to The Big Three with the intro pricing and it’s like that first year with your cable company. It looks really good and then the introductory period ends, and when you’re all comfortable with your services  –Bam! –they deliver the new higher pricing plan.

There is no indication of course, that the cloud vendors intend to do that. In fact, right now, they can’t afford to do it because one can’t raise prices, while the others keep them low because you’ll just switch services.

That’s where it gets tricky for the vendors. The competition has reached the point that they keep cutting prices until we are looking at percentages of pennies. It’s important to note that computing power isn’t fixed of course. The reason they can continue to cut prices is because the target continues to move. The price of computing plunges with the prices offered to consumers, but no matter how low the cost of the hardware, it will never be zero –and the Big Three infrastructure players have to decide at some point if they can continue to play this increasingly dangerous game.

Featured Image: Will Curran/Flickr UNDER A CC BY SA-2.0 LICENSE