July 31, 2013, 6:00 AM — A tip to infrastructure-as-a-service providers: it’s not only about price.
Today is the latest announcement from an IaaS provider about a price cut. ProfitBricks said that it is cutting its prices in half.
The announcement follows one last week from CloudSigma, which dropped its RAM pricing by 20 percent and CPU pricing 15 percent.
Source: CarbonNYC, via Flickr
Don’t get me wrong, price is important. But especially for enterprises, it’s not the only factor. Plus, it’s very challenging to compare prices because all of the services are architected differently – you aren’t comparing apples to apples. Saying your prices dropped by X percent or that your prices are X percent lower than AWS’, doesn’t really mean a lot.
AWS continues to win customers because it offers a good price but also has the broadest feature set, even if it continues to be dogged by a reputation for not meeting the needs of enterprises. Gartner analyst Lydia Leong tweeted last week that AWS meets 77 percent of Gartner’s required enterprise criteria for public cloud IaaS, compared to 48 percent for Rackspace. The analysts haven’t similarly evaluated HP, but she wrote it would score even lower than Rackspace. “These are basic features, not bells and whistles,” she wrote.
I don’t know how ProfitBricks and CloudSigma compare to AWS based on enterprise features. But given their relative positions in the market, they need an angle besides price to compete with AWS.
Arguing that AWS’ margins have gone up due to its price cutting isn’t going to win new customers. That’s what CloudSigma is doing. GigaOm reported last week on CloudSigma’s price changes and pointed to a statement from the company that says AWS’ prices have dropped faster than Moore’s Law, meaning it is dropping prices faster than its costs have gone down, thus the company’s margins have gone up.
AWS doesn’t report on its margins so that’s quite a leap. Also, efficiency isn’t only about hardware. Surely a business the size of AWS gains efficiencies in many different ways. I’m not buying CloudSigma’s argument.
ProfitBricks makes a nice point that its pricing scheme, which unbundles features in a way that can save money for users compared to AWS, makes sense for even the largest businesses. Many companies have realized that at a certain size, using the public cloud is no longer cost effective. ProfitBricks argues that its pricing scheme makes sense for even the largest users. That's not a bad angle to push, although the largest users are also probably the most shy to use a relatively small service provider.
I should also call out AWS, because it's probably the most guilty of the price cut announcement. It even likes to put a count on how many price cuts it's made. But at this point in market maturity and given that it's got the best feature set, AWS can get away with it.
It’s a tough market out there, with a giant like AWS dominating the landscape. But trying to compete with the giant on price is a losing proposition.
Read more of Nancy Gohring's "To the Cloud" blog and follow the latest IT news at ITworld. Follow Nancy on Twitter at @ngohring and on Google+. For the latest IT news, analysis and how-tos, follow ITworld on Twitter and Facebook.