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Cloud Prices Drop, But Do Customers Save?

Major cloud providers compete on a variety of fronts, but perhaps most especially on price. Case in point is Amazon, which has dropped the price of its core services--computing power, storage and bandwidth--eight times during the past 14 months, according to Web services management vendor RightScale.

And Amazon isn't alone: Along with Google, Microsoft and Rackspace, these providers cut prices 29 times, RightScale's Kim Weins wrote in late March. Amazon's whole strategy is based on low margins and low prices, just like any other retail company, Weins wrote.

The other three big cloud providers had no choice but to go along; Google and Microsoft each cut prices three times during the past eight months. Rackspace, whose pockets are shallower but whose service is still competitive, cut prices on storage by as much as 25%.

Average bandwidth costs have dropped nearly 50% during the past 14 months industrywide, according to RightScale, while database costs dropped 31% and compute prices went down 21%.

The cost-cutting continues. After Google announced last week an across-the-board price cut of 4% for on-demand virtual machines, Amazon responded almost immediately by dropping its price for on-demand Windows virtual servers by 26%, according to Network World.

Sounds impressive, right? The thing is, cloud services come with a host of configurable elements, each of which is priced separately. That means Amazon could slash prices on its core compute services without nearly as big an impact on the overall cost as customers might expect.

"Each cloud provider's price change announcement typically applies to only a subset of its services," Weins wrote. "About two-thirds of cloud costs are associated with compute services, yet only 23% of the price reductions involved compute, and the average amount of the price reduction for compute was just over 20%--more modest than the reductions in some of the less-used cloud services."

Customers also shouldn't let falling prices excuse them from paying attention to how much they're actually spending. Recent analysis shows that some customers have migrated not just workloads to cloud services, but prodigal habits as well--such as provisioning resources that they are paying for but not using.

As Charlie Babcock reported from Cloud Connect 2013, analysis by cloud usage firms showed that up to 80% of provisioned instances are underutilized. In looking at 450 customers of Cloudyn, a usage and assessment firm, Cloudyn found that 16% of those users had block storage volumes associated with VM instances that had been decommissioned, but the block storage was still live--and the customers were still being charged for it.

Of course, a cloud usage company has a vested interest in touting instances of overspending on cloud to justify its service, but the fact remains that even as providers cut prices, costly surprises can creep up on IT if they aren't careful.

It's also possible that even as providers are slashing prices, IaaS still isn't as cheap as it should be. That's because cloud providers have an ace up the sleeve: Moore's Law, which drives up performance as it drives down cost.

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As Art Wittmann noted in a blog last year, when companies are trying to determine the cost benefit of IaaS, "Given the improvements in processor performance and storage capacity per drive, customers should expect--no, demand--that prices continually fall. If you don't hold your cloud vendors' feet to the fire on pricing, you're giving up the fundamental advantage that IT has had and exploited for almost four decades. That might be OK, but you'd better get something incredibly valuable in return. Make your infrastructure-as-a-service provider prove that value to you."

Finally, while low prices are appealing, they aren't the only measure of a service. Some organizations, or business leaders within those organizations, may be tempted to look at cloud services primarily on the basis of cost.

That would be a mistake. Despite all that providers have done to reduce the complexity of computing services, cloud is still a technology purchase. Differences in implementation, configuration, technical standards and interoperability make the cloud far too complex for customers to pick one over the other based only on price.