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Amazon's aggressive pricing shouldn't scare off public cloud competitors

Samuel Shead | July 15, 2013
Customers also need to be wary of creeping costs outside of Amazon's list price.

Amazon Web Services (AWS) reduced its cloud computing prices for the 37th time this week and has suggested that this is unlikely to be the last time it will do so.

Customers in all regions using EC2 dedicated instances to run memory-intensive applications will now be charged $2 per hour instead of $10 per hour for dedicated per region fees, alongside the standard EC2 fees.

This is obviously great news for enterprise customers of AWS, but what about the cloud giant's competitors? Rivals' share prices were diving on hearing the announcement and there is no doubt concern amongst the public cloud community that some might not be able to keep up with AWS' pace.

"We will continue to work to lower our costs and pass the savings to our customers," Steve Midgley, head of AWS EMEA, told Techworld.

The AWS business model relies on economies of scale, whereby the bigger the company's overall infrastructure gets, the less it costs for it to operate individual servers - resulting in cheaper computation and storage for customers.

"We understand how to run high-volume/low-margin businesses and are relentless about driving efficiencies and passing along the cost savings to our customers," said Midgley.

AWS claims that it is able to scale up and reduce cloud costs by focusing on areas that aren't feasible for most businesses.

"We have engineers focused on hardware design, networking configuration, power distribution and driving efficiencies in these areas," said Midgley. "When you look through history, the service model ends up winning because the pricing model is so disruptive. This is a very different business to the one most tech companies have been in for the last 30 years."

However, despite AWS' dominance and aggressive tactics, the analyst community believes that there is still money to be made in this market. But some have also warned that although prices are coming down, customers should be wary of additional costs that aren't reflected in AWS' price list.

Freeform Dynamics IT analyst Tony Lock told Techworld that the price changes made by AWS are the result of a maturing market. "In many ways, it's a natural development of increasing competition, customer expectations maturing and the ability of suppliers to deliver services effectively at lower costs," he said.

In March, the Synergy Research Group calculated Amazon's share of infrastructure-as-a-service (IaaS) to be 36 per cent in the fourth quarter of 2012. IBM and BT were a considerable distance behind AWS for the quarter, with six per cent and four percent respectively.

Rackspace, another direct competitor to AWS, saw its share price plummet yesterday by 6.8 per cent when the AWS price cuts made the headlines.


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