Amazon’s Price Reductions and What Cloud Buyers Really Need

As expected, Amazon lowered its pricing for its new m3 instance sizes at their #AWSSummit event yesterday.  Now the cloud becomes more competitive.

I’ve had dozens of conversations with prospects, customers, analysts (financial and technology) and editors since ProfitBricks announced our price drop 7 months ago.  I was really surprised to hear how many people believed that Amazon’s pricing was low and that their margins were very low.

Amazon’s Margins and The Public Cloud Market

They are not.  Their margins have been over 80% for years. The high pricing was slowing the growth of the cloud and driving interest and deployments the wrong way – to physical machines and private clouds.

As I stated yesterday – the Cloud is the future, but it’s available now.  And now that Amazon lowered their pricing to be more competitive with ProfitBricks and Google, we’ll see more workloads migrate to the cloud and existing public cloud deployments expand and stay on the cloud.  This is great news for IT and great news for the public cloud.

But there is more to this story.  The best pricing from Amazon still requires upfront payments, long term commitments and overbuying.

Up-front commitments and long term agreements

James Staten, a Cloud Computing analyst with Forrester Research recently blogged that Amazon’s Reserved Instances and their upfront commitments require predictable infrastructure needs and that’s becoming more difficult.  He says, “Predictability is going down.  In the now Age of the Customer you have to change your Systems of Engagement faster and not slower…”  We agree with James, and we hear from customers that Amazon’s “reserved instances” don’t make sense for their business, with many CFOs and technology buying teams wishing to move away from the pricing schemes of the past and towards a more budget friendly “consumption based model”.  We think it’s great that more and more IT teams are realizing just how complicated and “un-cloudy” Amazon’s pricing is.

One size does not fit all and forces you to over buy

Amazon continues to force buyers to overbuy infrastructure.  This reduces the overall ROI of moving to the cloud.  Frankly, I am surprised that both Amazon and Google only offer a handful of instance sizes.  The cloud is supposed to introduce resources on demand that match workload requirements.  I asked my team to look at a typical cloud environment of a customer at ProfitBricks and evaluate the cost of that environment at both ProfitBricks and Amazon based on their new April 1st 2014 “m3” instance pricing.  Amazon’s limited instances would force our customer to overbuy (deploy on larger, more expensive instances) and pay 43% more per month. Review the chart below:

 

Sample-Cloud-Pricing-ProfitBricks-Amazon-AWS-sm

Sample Cloud Environment Cost Model ProfitBricks vs. Amazon AWS

 

The Cloud – The Way We All Envisioned It: One Simple Price, No Overbuying, No Upfront Commitments with Great Performance

ProfitBricks is happy to offer the Cloud in a way that makes it friendly to your budget and which gives your IT team the flexibility and performance it needs to leverage technology to grow your business.  Let’s all move away from the complex pricing and lock-in of the past and move to a true usage based utility model for IT infrastructure.  I look forward to hearing from you via Twitter @gaugi or in the comments below.