With Google’s announcements today at the GCP (Google Cloud Platform) event, the public cloud landscape appears to have dramatically snapped into an entirely new configuration.
Google made it clear it fully intends to be the ultimate price aggressor: not only for today, but for the foreseeable future.
And Amazon simply matching Google’s stance isn’t as simple as it might sound.
Although it’s going to take a while for all the ramifications to be felt, today was certainly a big day in the evolution of the public cloud marketplace.
Now we have to figure out what it all means ...
I won’t cover it here, simply because it’s been covered so well elsewhere, but you should take away two elements.
First, Google announced eye-opening reductions in their compute, memory and storage pricing — as well as many of the services that use these basic resources. Second, Google committed to “follow the industry curve” on hardware prices, and continually pass along savings to customers on a regular basis.
The first statement is impressive, the second one is stunning.
The Meaning Behind The Statements
Clearly, Google sees public cloud as a “must win” — most likely not as a standalone business, but as an important complement to their other services and revenue streams. There are many plausible justifications for their stance.
Example: much like the first round of the web was a battle for “eyeballs”, this round appears to be a battle for developers.
Google’s primary pitch here is predictably declining low costs, simple pricing and no need to concern yourself with resource planning.
More importantly, Google's motivations are likely very different than Amazon's. AWS was driven by a motivation to disrupt the profit pool associated with enterprise IT. Google's motivation seems to be to build and extend their considerable franchise on the internet.
Dry up the profit pool, and Amazon will likely lose interest. Google's interest will remain, as it is part of a larger whole.
If Google follows on with significant investments in additional services, external management options, etc. — it will be clear that they are in it to win it.
I think Amazon’s strategic options now boil down to two: offer better services to their existing customers, and try to get better at selling to enterprises.
My belief is that Amazon won’t be able to play Google’s cost game for a number of reasons.
First while public cloud can be called a sideline business for both Amazon (retail) and Google (advertising), they are certainly not equals.
While Amazon might appear to have more revenue (~$75B vs. Google’s ~$60B), Amazon is at a considerable disadvantage compared to Google’s profit margins (23%), growth rates and market capitalization ($390 billion, more than twice Amazon’s).
That extra financial firepower can fund a price war for a very, very long time. No comment on vendors that think a $1B potential spending announcement alone will make them a significant player in this space.
Second, let’s not forget that Google’s core business has always demanded running enormous farms of servers around the globe, and doing so very efficiently. Their code, their processes, their scale, their global footprint — all in place today — are likely to be unmatched by Amazon, whose core business primarily demands automated warehouses as infrastructure.
And then there’s relative scale: the requirements for Google Cloud Platform is likely to be nothing more than a tiny ant on the back of the giant elephant of Google’s overall IT infrastructure spend — and be that way for the long term.
Third — although much has not been said about this — Google is sitting on a veritable treasure trove of rich, monetizable data services that could end up being extremely attractive to developers.
Just look at what people do with things like Google Maps.
By comparison, Amazon can tell you what people have bought on Amazon — and little else.
Ultimately, I don’’t think Amazon will be able to match Google on the cost game. Just too many factors are stacked against it.
Competing by offering better services is a more reasonable strategy — for the medium term, that is. Specific cloud services can be replicated or emulated; there are few barriers to competition here. And — at some point — the feature war doesn’t matter so much any more. Just how many features do you use in Microsoft Word?
That leaves Amazon with the option of getting better at selling to enterprises, who will typically pay more in exchange for environments that are (a) tailored to their needs, (b) compatible with their existing environment and (c) under control of the enterprise IT group. Historically, Amazon’s public cloud service hasn’t been appealing to most enterprises -- and that's part of the rationale for VMware’s vCHS).
But it’s an opportunity — theoretically.
I will join others in being extremely interested to see how Amazon responds. Maybe they'll come up with something clever. But a simple, tactical price cut won’t be enough.
How About The Rest Of Us?
Some people shop like crazy for the best price on gasoline for their cars. Saving 5 cents a gallon is a pretty big deal to them, and they'll drive out of their way to get it. I usually don’t drive much, so I’m not much of a price shopper.
Then again, if I ran a large fleet of limousines, I’d probably approach the topic very differently.
I think the same can be said of cloud pricing. For very heavy users of resources, Google’s recent pricing moves are a Really Big Deal. They will change many of the economic assumptions behind compute-centric business models.
Just as when the cost of other economic inputs fall — energy, labor, capital — a dramatic drop in compute costs creates entirely new opportunities. And that's what we should see here.
For those of us with lesser IT requirements, we’re certainly pleased to see downward pricing pressure, but we’re probably concerned with other things ahead of the ultimate in rock-bottom pricing.
There’s also another historical argument that’s now potentially up-for-grabs — that if you were a heavy consumer of IT, you’d usually find it cheaper to own and run your own assets vs. rent capacity through Amazon or similar.
Now I’m not quite so sure.
What Lies Ahead?
Interesting times indeed.
I could probably say this is contest is less about who wins, and more about who wants it more?
And I can tell you where I'm placing my bet.
Like this post? Why not subscribe via email?