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463538309Competition to offer lower-cost cloud services hasn’t ended — in fact, the price wars may just be getting underway, according to an analyst who closely follows the cost of remotely accessed computing, storage and networking resources.

“Cloud pricing has come down around 8 percent since October 2014, and we forecast it will decline another 5 percent over the next year,” said Owen Rogers, research director of the digital economics unit at New York-based 451 Research and keeper of the closely watched Cloud Price Index. “Is the cloud price war over? I think we’re only just getting started.”

That view seems at odds with a remark last week by Scott Guthrie, who heads Microsoft’s Azure cloud offering. Guthrie declared that Azure’s pricing war with Amazon Web Services, which had characterized cloud competition in years past, is winding down.

“For the most part, we (Azure and AWS) aren’t competing on price,” Guthrie said during a 45-minute on-stage interview at a Deutsche Bank technology conference. “It’s typical we’re competing more in value, I would say at this point. Which is a difference versus, say, two or three years ago, where I think it was more about cost per VM (virtual machine) or cost per storage.” By “value,” Guthrie clarified to interviewer Karl Keirstead, he was referring to “the higher-level services, the features, the performance and the ability to differentiate or deliver true innovations in a way that isn’t possible on prem(ises).”

At the least, what may be true for Microsoft and Amazon doesn’t hold for the cloud market in general, Rogers said in lengthy email responding to a GeekWire request for comment on Guthrie’s remarks.

Owen Rogers, Research Director, Digital Economics Unit at 451 Research
Owen Rogers, Research Director, Digital Economics Unit at 451 Research

“Remember that AWS, Google and Microsoft aren’t the only players in the market,” Rogers said. “The Cloud Price Index I manage has 51 cloud providers, which together represent nearly 90 percent of the global infrastructure-as-a-service (IaaS) market. Competition among all these players is bound to affect prices.” The Cloud Price Index tracks 12 types of cloud services, including storage, databases, compute and support, using a basket-of-goods approach similar to that used to measure inflation.

Just this week, Oracle stepped up its quest to win IaaS market share on the basis of cost (and speed), with chairman Larry Ellison boldly claiming that “Amazon’s lead is over.”

Guthrie is correct, Rogers said, that value, such as features and geographical coverage, “are primary factors in decision-making, but that doesn’t mean cost isn’t a concern. Value and cost are inextricably linked. I might pay twice the price of a normal cup of coffee for a really great cup, but I wouldn’t pay ten times for it.”

He added, “Similarly, CIOs might pay above the (average) for a cloud provider than has a lot of great features and geographies, but they don’t have unlimited budgets. Providers will always be under price pressure from end-users negotiating and shopping around, which will force prices down. Providers will benefit from Moore’s law and increasing economies of scale, which will reduce their costs. (They’ll pass on those savings) to end-users, to be even more price competitive.”

It’s true, Rogers said, that price wars have calmed down for virtual machines — essentially, one server acting as many, as compared to cloud computing, which is essentially many servers acting as one. Still, VM prices “are still likely to come down. And even if they do stabilize, there are hundreds of other potential battlegrounds on which cloud providers can fight: bandwidth, storage, databases, even eventually container or serverless technology.”

In fact, he added, “Object-storage pricing has barely moved in the past two years, while VM prices have come down 14 percent over past two years.”

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