Why there is more to IaaS than price cuts

Laurent Lachal, Senior Analyst, Ovum Software

At the end of March 2014, and in short succession, Google, Amazon Web Services (AWS), and Microsoft announced significant price cuts to their public infrastructure-as-a-service (IaaS) cloud offerings. Widely reported in the press, the market rejoiced at the news, which combined price cuts with other announcements.

IaaS price cuts are not a new trend, but the most important aspect of this latest round of cuts is that it reflects Google’s unambiguous ambition to position itself as a major IaaS player. However, the company has much more to do to catch up with AWS, because price cuts are not the main weapon in an IaaS vendor’s arsenal.

For more information, see the upcoming Ovum report IaaS: Beyond Price Cuts.

IaaS is also one of the key topics that will be covered at the Ovum Industry Congress, May 13/14, 2014, at the Victoria Park Plaza Hotel, London. Attendance is free of charge for Ovum end-user clients. Please visit www.ovumindustrycongress.com to register.

Business as usual for AWS, not Google

AWS is way ahead of other IaaS providers when it comes to the breadth, depth, and number of price cuts. The March 2014 announcement is a good example of its abilities at all levels. The cuts applied not only to compute and storage, but also database, Hadoop, and caching resources. It cut (storage) prices by up to 65%, AWS’s 42nd price reduction since 2008.

In contrast, the extent of Google’s announced price cuts was surprising because Google’s price cuts had so far been rather timid. More importantly, the company announced its determination to continue to steadily and significantly reduce prices by between 20% and 30% (this will not prove to be a particular challenge to AWS) and a flexible “sustained-use” discount scheme for compute instances, which will prove more of a challenge to the more complex AWS reserved instance discount scheme.

Microsoft, meanwhile, matched AWS in terms of the depth of the price cuts, and was reminiscent of Google’s announcement regarding flexibility, with the introduction of region-specific pricing and a new, cheaper, but less feature-rich, “basic” compute instances tier.

In this context, enterprises need to keep in mind not only the price cuts and the additional simplicity and flexibility, but also the differences between the three IaaS vendors in terms of design (unlike AWS instances, Google instances have no local and only network storage), technology type (neither Google nor Microsoft have SSD options), and technology maturity (Microsoft tends to use older CPUs compared to AWS and Google).

IaaS service providers need to help consumers deal with price cuts

These announcements provide a good illustration of the increasing intricacy of IaaS pricing structures. In the case of Microsoft, for example, the new region-specific pricing adds flexibility as well as complexity. As a result, vendors need to help their customers with the right tooling to keep up with this increasing complexity. Even those using Google’s straightforward sustained-use pricing need to accurately forecast their IaaS cloud usage to make the most of it.

That is the reason why AWS, about two weeks after its latest price cuts, announced its new Cost Explorer tool that integrates with the new AWS Billing Console launched in November 2013 to show current month’s spend as well as the last four months of AWS spend to analyze trends and spending patterns. It still does not provide enough granularity for many, especially at EC2 level, and cannot compare to the functionality of more specialists tools, but it is a step in the right direction.

Price cuts are not the main weapon in the IaaS vendor’s arsenal

Ovum does not expect large enterprises to give up on private clouds, even as they become increasingly unjustifiable as a result of the multiplication of public IaaS cloud price cuts. CIOs will certainly have to work harder at identifying and explaining their value-add to the business, but there is much more to this value that simple cost issues.

Enterprises are not necessarily turning to public IaaS cloud services because they are cheaper than the alternatives (such as traditional infrastructure hosting services) or the solutions they currently use (internal data centers). Instead, many are choosing this option because public IaaS cloud services enable them to do what they would not have been in a position to do otherwise, and to do it faster with fewer risks because of low upfront costs.

Infact, low cost is the least important reason for an enterprise to pick an IaaS provider. Even AWS competes less on low cost than it does on the breadth and depth of its technology (compute, database, monitoring) and business (marketplace, billing, payment) service portfolio and the scope of its partner ecosystem.

Network-related services is the next battleground

The latest AWS, Google, and Microsoft price cuts focus on the traditional domains of compute and storage. This is understandable because these are the two domains that represent the bulk of IaaS cloud bills. Nevertheless, as the role of the network increases, Ovum expects network resource (such as bandwidth)-related price cuts to become the next battleground in 2014–2015.

This explains the increasing interest of large IaaS cloud providers in software-defined networking (SDN) technology as a means to drive down the price of existing network-related services first, before SDN becoming a platform for a new generation of network-related services (see 2014 Trends to Watch: Public Clouds).

The post There is more to IaaS than price cuts appeared first on Ovum.

Related Stories

Leave a comment

Alternatively

This will only be used to quickly provide signup information and will not allow us to post to your account or appear on your timeline.