Google throws down cloud gauntlet with massive price cuts

Automatic discounts for sustained use bring true utility computing a step closer and could help Google close the gap on Amazon Web Services

Google has aggressively cut and simplified the pricing of its business cloud offerings in a move that is likely to spark a major price war among public cloud providers.

At the Google Cloud Platform Live event in San Francisco this week, the company’s senior vice-president Urs Hölzle announced reductions of 32% across the board in all regions for use of its infrastructure as a service (IaaS) offering Google Compute Engine. He also introduced a flat per-gigabyte rate for storage that represents a cut of 68% for most users. 

Further discounts of up to an additional 53% kick in automatically when a virtual machine is used for more than a quarter of the month, without any upfront payment or commitment.

Besides laying down the gauntlet to rivals in terms of pricing levels, the new structure could also spell an end to the confusing pricing options common among cloud providers, such as the practice of only offering substantial discounts to users prepared to commit upfront to a certain level of usage.

By undercutting rivals’ reserve instance pricing with its flexible on-demand options, Google is hoping to woo customers by fulfilling the original promise of the cloud to deliver a simple, flexible resource where you only pay for what you use and the cost is both attractive and predictable.

We’re resetting the price of cloud to where it should be. And this isn’t a one-time step – it’s a philosophy

Urs Hölzle, Google

“The industry hasn’t really evolved towards that simple concept. You have to guess how much you are going use a virtual machine for the next year or three. That’s not simple, on-demand, elastic computing – it requires a degree in finance to get right,” said Hölzle, noting that prices for the same resource from the same provider can vary by as much as a factor of ten.

The problem was highlighted by analyst 451 Research in December last year, with the release of its Cloud Pricing Codex. “Comparing like for like or weighing the pros and cons of different methods is a nightmarish task, with each provider using confusing terminology and differing language,” the analyst said.

There is little doubt Google wants to change the game. Having allowed rival Amazon Web Services (AWS) to gain a huge head-start in the market – AWS’s share is larger than that of its four largest rivals combined – it seems Google is seeking an all-out assault on the latter’s territory.

According to Hölzle, this week’s announcements are only the first salvo in its battle for cloud dominance. “We’re really resetting the price of cloud to where it should be. And this isn’t a one-time step – it’s a philosophy. The price trend of virtual hardware should follow the price trend of real hardware. It should follow Moore’s law.”

CIOs are rewarded with a discount for sustained use, rather than having to commit resources up front. That’s a really compelling proposition

Owen Rogers, 451 Research

Amazon responded days later with price cuts of between 7% and 40% for many of its own cloud offerings, but it will take more time for the public cloud supremo to simplify its complicated pricing structure to match Google’s.

In the meantime, Google hopes to make further inroads into the market with the introduction of compelling new features for customers. It is embarking on a road show to promote its cloud platform worldwide, and more major announcements are promised at the Google I/O conference in June.

Hölzle said: “We’re laying the groundwork for years and years of improvement and innovation. While we already have a strong platform, you can expect a lot more. We see a clear path for making developers phenomenally more productive and making it easy to build applications that really take advantage of our platform and all the services it has to offer – be it storage, compute or higher level things like maps, speech recognition and translation.”

Owen Rogers, senior analyst for digital economics, at 451 Research, said: “Google is essentially saying to AWS and the rest of the market that it's here, it's ready and it's serious about competing in the cloud market. The price cuts are a way of demonstrating that it's going to address customers’ concerns over cost.”

More on cloud pricing and Google's ambitions

“Particularly interesting is the fact it has come up with a pricing model that means CIOs can carry on using virtual machines on demand yet automatically be rewarded with a discount for sustained use, rather than having to risk committing resources up front.

"That’s a really compelling proposition and somewhat of a threat to AWS and all the other providers that use reserve instance pricing. At the moment there’s no equivalent in the market.”

As a result, he thinks Google may start to pull away from Amazon’s other public cloud rivals and begin to close the gap on AWS’s seemingly unassailable lead in the public cloud market. 

“I suspect the likes of Google, Amazon and Microsoft Azure will become the standard providers for basic cloud infrastructure services, which may push other providers such as IBM to focus on more value-added cloud services. But whether these two sides of the market will eventually merge or whether they will differentiate further isn’t yet clear,” said Rogers.

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