Network World: Cloud price wars give way to feature battles

ATN-300InsightaaS: Much has been made of the "race to zero" in the IaaS market - the drive to deliver basic compute capacity at the lowest possible price. It has been my opinion (and the opinion of many other cloud industry participants and observers as well) that this trend has the effect of squeezing out most small scale providers, as hyper-scale providers like AWS, Microsoft (Azure) and Google are able to reap large savings from relatively small incremental improvements, achieving efficiencies that are beyond the reach of niche suppliers.

This article from Network World suggests that the IaaS battleground is shifting away from price to performance, and highlights the introduction of Microsoft's transaction-oriented "Godzilla VMs" and AWS's compute-optimized C4 family of VMs. It concludes by stating that "The point is the IaaS cloud market is maturing past its early days of vendors competing on price to distinguish their platforms to now various players competing on more advanced features."

I don't know that the examples cited in the piece necessarily prove the conclusion, but it's an interesting change in the competitive environment, and author Brandon Butler deserves kudos for calling attention to it. A shift towards engineering rather than hyperscale as the key ingredient in IaaS competitiveness might have some interesting consequences for the market as a whole: would IBM/SoftLayer become a leader based on the fact that IBM has greater engineering depth than AWS, Microsoft or Google? Would it open the door for HP or another system vendor? How would the networking expertise of CenturyLink or other firms with telco assets affect the trend?

In the end, success in the cloud (as in many businesses) relies on the network effect, which means scale matters: as Wiliam Mougayar noted in the conclusion to the O'Reilly Radar post highlighted on ATN two days ago, "let’s not forget the basic golden rule of network effects: without users, there is no network effect." Hyperscale will continue to be the key to IaaS success - if not solely because of the way that it enables cost reduction, then also because of the way that it helps suppliers to generate the variable returns demanded by their fixed asset investments.

Two years ago the biggest battles in the IaaS cloud computing industry were over price. Amazon Web Services would drop prices one day, and Google or Microsoft would cut the price tag on virtual machines or storage weeks, days, or even hours afterwards.

It was a seemingly non-stop back and forth that caused some towonder how low the prices could go.

Fast forward to today and providers are still dropping prices, but not with the same vigor and frequency as in 2013. Constant jostling of prices doesn’t grab headlines, nor the buzz of the industry like it used to. At AWS’s most recent re:Invent conference it didn’t even make a price cut announcement, which had become standard for any big AWS news event.

Something else has taken the place of price cuts though, and it could be even more beneficial to customers: a feature-war. Each cloud provider is trying to make their platform the most feature-rich of them all. Experts say it’s a natural evolution of the market. “There’s only so far you can drop prices"...

Read the entire post at Network World: Link

 

 

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