Google Reinvents How Cloud Computing Is Priced - and Sends Amazon a Message

Context matters. Given the human and institutional penchant for control, that the tech industry has been able to sell customers on the benefits of The Cloud, an amorphous and not exactly tangible concept, is a triumph in itself.

People who are uncomfortable with the thought of their children moving across town or going to a new restaurant seem utterly sanguine with the idea that all of their most important data and information is stored somewhere they can not even describe, let alone locate.

The industry has benefited handsomely from this, Amazon perhaps more than others, given its signature approach to dominating whatever business it chooses to enter. But there is, pardon the expression, a cloud on the horizon. Which is, as the following article explains, a growing disconnect between the decline in hardware prices and the grudging reduction in cloud prices.

Google's plan to reduce those costs dramatically and then sustain them through a variable-pricing mechanism accomplishes several strategic objectives: it reinforces the underlying economics of movement to the cloud, enhancing its growth prospects; it seconds the broader, but still controversial, movement towards tying cost to usage (in this case based on consistency and timing). Finally, it sends a message to Amazon that there are other, equally determined and skilled competitors in this business, which means that it should assume nothing about the permanence of its position in any segment. JL

Cade Metz reports in Wired:

Cloud prices have been lowered 6 to 8 percent annually whereas hardware costs have plummeted 30 to 45 percent. Google’s new pricing aims to close this gap

Many people complain that renting computer power from Amazon and other cloud companies is too expensive. Though the cloud is a great way to get a startup off the ground or run a website where the daily traffic ebbs and flows, the voices say, there are other times when it’s far cheaper to just buy your own computer hardware. “I’m not a big believer in the public cloud,” one Silicon Valley CEO told us this past summer. “It’s just not effective in the long run.”
But Google wants to change this.
At an event in San Francisco, the tech giant significantly reduced the prices attached to several of its cloud computing services, seeking an edge over Amazon, the world’s dominant cloud company. “This brings you industry leading pricing without the complexity you’re used to,” said Urs Hölzle, who oversees Google’s cloud services and its entire online infrastructure.
The company reduced prices by 32 percent across its Google Compute Engine, which offers raw virtual machines for running just about any software. It made a similar reduction on Google App Engine, a service that automatically runs and manages your software applications but asks that you build these applications in rather specific way. And it lowered prices by about 68 percent on Google Cloud Storage, a means of storing data, and by about 85 percent on Google Big Query, which lets you analyze larger amounts of data.
But perhaps most notably, given the longterm impact of the move, the company introduced a new pricing scheme that provides discounts if you use a consistent amount of computing power over the course of the day. Google says that now, on Compute Engine, prices will automatically drop by 53 percent on virtual machines that you use 24 hours a day, seven days a week, over the course of a month. Google calls them “sustained-use discounts,” and they address the very problem that cloud customers have most complained about in the past. If their cloud workloads are consistent, the customers say, it makes more economic sense to buy and operate their own machines.
Hölzle argues that although cloud prices have dropped consistently over the past few years, they haven’t dropped as much as the price of computer hardware. Cloud prices have been lowered 6 to 8 percent annually, he says, whereas as hardware costs have plummeted 30 to 45 percent. Google’s new pricing aims to close this gap, and the company intends keep it closed as time goes on (though it has made no firm commitments to future price reductions).
The company’s rather enormous pricing shift is certainly welcome news in the world of cloud computing, but James Staten, an analyst with research outfit Forrester, says the changes won’t necessarily give Google an edge over its rivals. “In this business,” he says, “you’re cheaper for about 24 hours. That’s how quickly the others guys can respond on price.” But Hölzle believes that Google has an inherent advantage because its global computing infrastructure — which runs not only its cloud services but all of its own services, such as Google Search and Gmail — is the largest on earth. Because it can buy hardware in such bulk, the argument goes, it can keep prices lower.
That said, Amazon’s operation is rather large as well. And there will always be cases where the cloud services offered by both these companies is more expensive than buying your own gear. Google and Amazon, after all, must spent money operate and manage its gear. But the beauty of the cloud is that you don’t have to manage it. As long as the cloud isn’t significantly more expensive than buying your own gear, it makes a tremendous amount of sense. That’s what Google is aiming for.