Cloud Price War Erupts – How will Amazon, Microsoft, and Google Protect their Margins?

Spend Matters welcomes another guest post from Jon Winsett of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom, and shipping.

Last month, Microsoft, Amazon, and Google did something rare in the world of IT. They slashed their prices—and not just by a little. Microsoft cut its Azure prices by 27 to 65 percent. Amazon announced a broad price decrease on parts of its Amazon Web Services offering by 36 to 65 percent. Google made the most aggressive price cuts of all, with a 32 to 85 percent decrease for its Google Cloud Platform.

These price cuts are game-changers for many companies that have been debating whether to continue investing in their own computing infrastructure capabilities or to outsource to the cloud. For some, until now the cost models haven’t demonstrated savings powerful enough to overcome the risks and long-term expenditures.

But today many CIOs are asking a different question: “Can we afford not to move more IT to the cloud?”

The price cuts from Amazon, Google, and Microsoft may make the cloud irresistible, but IT and sourcing professionals should be cautious. These vendors may be sacrificing margin for market share, but it’s safe to assume that the cloud giants have a plan for protecting margins no matter how low prices go.

If you’re considering AWS, Google Cloud, or Microsoft Azure, consider the following:

Your SLA is more important than ever. Attractive pricing means more companies will be flocking to the cloud, and providers’ hosts can easily become overloaded with more virtual servers. Will Amazon, Google, and Microsoft be able to handle this influx without affecting service performance and reliability?

Expect more add-on costs. As more pricing/service tiers emerge, new basic-level pricing options may not include the same capabilities as provided in the past.

Keep an eye on support and customization costs. Cloud providers have always protected margins through support fees and customization costs. Will providers increase fees in these areas to compensate for the recent price cuts? It’s very possible.

Finally, be wary of long-term commitments. Is this the last price cut? Probably not. Signing a long-term commitment now may lock you in at prices that preclude you from benefitting from price cuts announced down the road.

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