Cloud Profits Narrowing as Real Fight for Market Share Begins
Cloud computing is no longer the stuff of buzz words and disjointed terminology; Microsoft, IBM, Dell, and most notably Amazon have managed to not only commercialize the cloud but offer its services on a massive scale. Competition, however, is beginning to heat up, and cloud profits are shrinking as the market diversifies, giving business IT admins a better chance to get what they need at a price that management can afford.
According to a recent article at Bloomberg, Amazon's latest round of price cuts to their cloud offerings narrowed profit margins for providers across the market as other companies struggle to keep up. After price cuts of up to 37 percent on March 5 to Amazon's EC2 service, for example, Microsoft quickly followed suit with cuts to pricing on Azure.
Adam Selipsky of Amazon Web Services says that the company expects "prices to be lower and lower over time, and load volumes to be higher and higher," and they've backed this big talk up by dropping cloud computing costs 19 times over the last six years. This is familiar ground for Amazon--its retail business operates with razor-thin profit margins, and the 10 percent profit it makes from cloud services gives them room to adjust even further downward as required. Competitors like Microsoft are used to margins up around 60 percent on software, and the tech giant is already under pressure from its investors to find more lucrative markets.
It's clear that Amazon is interested in market share rather than cloud profits for the forseeable future and that they have the ability to set pricing for the market as a whole. Once costs hit rock-bottom, however, it will be a question of who can deliver the highest level of service and muscle out less adept competitors.
Falling prices mean good things for IT admins, but could this trend also herald a consolidation of services at the hands of massive monopolies? Not yet, according to a recent report by Pyramid research at Research and Markets. The report discusses the growth of cloud computing competition, in large part due to the proliferation of cloud services. With storage, analytics, development, and software all up for grabs in the evolving cloud landscape, venture-capital funded start-ups are looking to corner niche markets even as large providers form alliances to provide end-to-end services. HP, for example, recently announced its cloud will be live within two months, and powerhouse Google is gearing up to try and grab a share of the market with services like Dropbox.
The Pyramid report asserts that part of this rampant cloud growth is due to the need for IT options in "specific verticals, such as utilities, healthcare and education, with solutions designed to solve specific problems." In other words, while Amazon may have all the power when it comes to dropping the price of general cloud services and storage, this won't be enough to limit competitive growth on the whole.
For IT admins at small and midsized businesses, lower cloud computing prices make switching over from local servers more cost effective, and data gathered thus far indicates the overall number of cloud providers--particularly in the area of specialized services--is growing. The takeaway here is that cloud computing as a technology has grown large enough and its functions diversified enough that it will respond to standard market forces, in turn giving IT pros a better chance of predicting its course.