Sometimes it seems that large tech news sites would rather discuss Amazon, Microsoft, and Google – profiting off the name recognition and staying on universally comprehensible ground – than make sense. A well-framed and assumedly well-intentioned article in Business Insider named some rather ridiculous front-runners in the as-a-service market’s “race to zero.”
Julie Bort explained the general scenario aptly on November 9: the cloud sector is so incredibly crowded that the prices keep getting lower and lower. Meanwhile, resource thresholds on typical plans continue to increase.
Actually the term race to zero has been around at least since December 2010, and it is a little more complicated than affordability. Joshua Geist of recovery-as-a-service (RaaS) firm Geminare coined the term and defined it as “the time when commodity pricing is driven so low that the only way to drive continued market value is by focusing on the value over and above the core commodity offering – the applications the commodity enables.” He elaborates that as this process occurs, gradually applications start to trump the supportive backend. That shift in turn leads to widespread acceleration within the industry (i.e. more businesses using the cloud and investing in it more substantially).
Why the Race to Zero?
Here are the two reasons Bort cites for that trend, which is ongoing in 2014:
- Looking at how technology is developing reveals a major reason why the prices keep getting sliced and diced. Storage is becoming less expensive all the time. Last year, a gigabyte of storage cost 4 cents, while it cost almost $10,000 in 1993 (although Bort’s source and details for that information are unclear).
- Amazon has successfully positioned itself as the Walmart of the distributed virtualization model. The company drops its prices regularly as the technology improves (or does it?). AWS claims it has cut prices almost 4 dozen times since 2008. Note: This should all sound like a bunch of baloney, but the perspective is not completely without merit.
The Argument for AWS as the Price-Dropping King
Bort says that Amazon is achieving its dominance by continuing to attract new business and bolstering its stable of solutions, which over time will (supposedly) become increasingly inexpensive.
She cleverly remarks that AWS is positioning its cloud plans in the same manner as its retail offerings. The strategy is essentially that a shopper will continue to throw additional items into their cart if each one is a great deal.
Meanwhile, Google and Microsoft (wow, those are unexpected names to hear) have stated that they will continue to offer pricing in the same ballpark as AWS and gradually expand their “as a service” catalog.
The result of this price war is that the consumer wins.
Clearly the race isn’t actually to zero, now is it? In some senses, yes, it is. Box CEO Aaron Levie recently commented in an interview that he believes one day, a scenario in which “storage is free and infinite” will arrive.
Hey Everybody! Lunch is Free!
As any economist will tell you, there is no such thing as a free lunch. Who pays? You do.
GeekWire reported in January on the story of Moz, a hugely respected and widely used SEO tools company. The firm’s CEO, Sarah Bird, reported that the company had transitioned from an Amazon cloud to one that is housed on-site.
Bird said that the processing power required by the company resulted in the expenditure of huge sums of money with AWS. The cloud giant became a consistent source of frustration: “It was killing our margins and adding to product instability.”
Bort’s analysis is completely correct in the sense that AWS is a leader in the marketplace. Because they have such vast infrastructure and such a populated clientele, their pricing strategy does have a major impact on the way that other companies in the space compete.
Let’s be honest, though: a large part of the reason that Amazon has succeeded is because cloud has been seen as confusing and undependable. Amazon, with its retail side, was already a trusted brand. However, they aren’t really an inexpensive option. We are.
Power Headed for Zero as Well
The Business Insider article was getting some traction after its release, and Alex Wilhelm of TechCrunch chimed in with some thoughts of his own. Wilhelm remarks that the first step in the race to zero occurred when Google took over the email industry by giving all users a free gigabyte of storage. Fast-forward to 2014, and we see Dropbox and Box providing free storage, without limitation, to all their business clients.
The biggest addition that Wilhelm makes to the discussion is that storage is not the only element involved. Instead, the race to zero goes beyond storage to processing power. It won’t just be about free storage but about using a free backend to run your business. Keep in mind that the infrastructure will be free, but the applications and platforms will not.
Wilhelm concludes his report with the simple sentence, “The race to zero is awesome.” The fact is, this industry is complex. Cisco isn’t taking part in the AWS race. Neither is Rackspace. Different providers have different business models.
If you want to talk price war, though, you have to recognize the true frontrunner. At Superb, no one beats our prices. We even have a Price Match Guarantee. Plus, a comment from our customer Alan Gustin demonstrates another strength: “Great job! Your tech team always responds fast. I appreciate that.”
By Kent Roberts