Wheel of fortune
Amazon Web Services has cut its prices eight times since April 2014. Hannah Breeze finds out how the company manages it
If you thought that high-profile price wars were reserved for the consumer space - supermarket chains and petrol stations - then you would be wrong, because in the enterprise cloud space, battles are fierce.
Amazon Web Services (AWS), VMware, Microsoft and Google are some of the firms that have fought over price in recent months and years. Last summer, a pricing tussle caused relations between AWS and VMware to get nasty after the former launched a Total Cost of Ownership calculator that the latter later branded "biased and inaccurate".
On an earnings call in October, AWS claimed it has slashed its prices a staggering eight times since April 2014 - almost once every couple of months. Earlier this month, it announced a five per cent price cut on a number of instances of its Elastic Compute Cloud (EC2) range, labelling it as its 51st price cut ever.
Speaking to CRN, AWS' technical evangelist, Ian Massingham (pictured), explained how the company can afford to do it. He said the "flywheel" method the firm uses is borrowed from the retail side of the business.
"We [cut prices] on a proactive basis - it is not responding to the competitors," he said. "There's a very well-known flywheel in retail - how do we drive customers to want to use Amazon.com? We're starting off with selection - we try to have a broad range of different products. That selection encourages customers to come to the site to buy things. When you've got customers on the site, it encourages other merchants to come to the site to sell products. Once you've got other merchants, they bring more selection [and so on]. You're spinning this wheel."
He said the philosophy worked so well for Amazon, the company tweaked it especially for the AWS unit.
"We start off with innovation, which is led by customers," he said. "Within our development process, [we say] ‘what can we do for you to make your life easier? What do you currently focus on that you don't want to have to focus on? That leads us to launch new services and those services lead to consumption. That consumption leads us to be able to optimise the platform - and once we have optimised the platform, that enables us to lower prices. Once we lower prices, that leads to more adoption, which leads to more ideas for innovation. And so we spin the wheel.
"One of the things unique to AWS is the important scale factor that is in play. The virtue of our scale globally is a really important attribute that means we are able to lower prices in a way which is really difficult for other competitors because they don't operate at the same scale as we do."
Slashing prices and undercutting rivals might be a good way to make the headlines, but when it comes to partners and customers, it is not just the figure on the price tag that is important, according to AWS partner Smart421's marketing director, Joseph Spear.
"The velocity of innovation and releases of new features from AWS is one of the key factors that places them ahead in the cloud space," he said.
But he added that its aggressive stance on price does help.
"Another factor [in its success] is the pricing model, which revises price points downwards as user uptake increases. We think it's a great model. And more importantly, so do our customers.
"Cloud computing, while still not simple or cheap, has certainly made IT infrastructure available in ways unthinkable and unaffordable before it became the new normal."