The End Of The Phoney Cloud War

Service providers like to talk about the intense price competition in the cloud. But is it real? I’m starting to think that the real fight hasn’t begun yet: the current so-called price war could be a phoney war.

Amazon always talks about how narrow its margins are, and makes regular price cuts for its AWS service. Microsoft has promised to beat those prices with its Azure service. Rackspace makes similar noises. Isn’t that a price war?

Sitzkrieg in the cloud

Well, no. Microsoft can afford to match prices, and sell Azure at a loss if necessary. It’s got a tonne of money from its Windows and Office monopolies, and it can see that the cloud has the potential to make those business models obsolete. Even a company as clumsy as Microsoft will try something – and believes it can buy its way into new markets.

And Amazon’s supposedly narrow margins could just be marketing spin. The company doesn’t break out accounts for its web services business, and in any case would not discuss the actual costs involved if it could possibly avoid it.

The phrase “phoney war” was coined in the first six months of World War II. The Western Allies (at that stage, France and Britain) had declared war on Germany in September 1939, but then… nothing happened.

Neither side could raise a big attack on the other. The following few months were also described as the Phoney War, or the “Bore War”, while Germany called it the “Sitzkrieg”. It ended in May 1940, when Germany invaded France.

The so-called cloud war is more fake than the Sitzkreig, according to a blog from German cloud provider ProfitBricks. Co-founder Andreas Gauger says the leaders are actually sitting on big profits, and could have a real price war any time, they just don’t need to yet.

Is Amazon’s AWS profitable?

Gauger reckons he could deliver Amazon’s cloud services, at Amazon’s prices, and make 60 to 80 percent margins. To back it up, ProfitBricks is cutting its prices and offering price comparisons with AWS.

We can’t take this at face value, of course, The first point to make is that ProfitBricks is tiny compared to the likes of Amazon or Rackspace. Its founders have good history (from the very successfully sold hosting company 1&1) but they want attention, and this may all be simple attention-seeking.

There is certainly hype here: elsewhere, ProfitBricks’ evangelist Pete Johnson talks of a move to “Cloud 2.0”. He describes this as  a major change in the industry – but a quick look suggests that when he says Cloud 2.0, he has in mind a set of features, which are essentially a list of ProfitBricks promises.

There is also bound to be confusion. Despite its initial promises, simple is the one thing cloud pricing is not.

Are we comparing “spot” pricing for servers bought at the last minute, or “reserved instance” pricing, which is buying a cloud server on a long-term deal making it a lot more like traditional servers? Or re these regular cloud instances?

Prepare for a further price drop?

Despite all this, I think it’s pretty likely that in the long term cloud pricing could decrease even more rapidly than it is doing now – given the rapid fall in the cost of hardware.

And if Gauger is right, Amazon and the other big players can easily screw prices right down, any time they want.

A version of this article appeared on Green Data Center News.

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