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Do cloud storage pricing cuts attract customers?

Amazon, Google and Microsoft frequently lower their prices, but there's no evidence that cloud storage pricing cuts attract new customers.

At least once a year, Amazon, Google and Microsoft drop the pricing on their cloud storage services, with each member of the trio determined not to get beat on monthly per-gigabyte cost. Yet it is unclear what role this pricing plays in attracting customers.

The most recent round of cloud storage pricing reductions started in December 2013 when Google made its Google Cloud Platform generally available and decreased prices on persistent disk block storage by 60%. Amazon responded in January by cutting Elastic Block Store pricing by 50%. One day later, Microsoft Azure committed to match Amazon Web Services prices for commodity services such as compute, storage and bandwidth.

So far, the biggest casualty of the price wars has been enterprise cloud storage vendor Nirvanix, which could not compete with its deep-pocketed rivals and went out of business last September despite winning high marks for its technology.

"This is a race to the bottom," said Ashish Nadkarni, research director for storage systems at Framingham, Mass.-based IDC. "This is a war with no end in sight. These companies can do this because they have other profit-making businesses. None of these guys are bothered about how much money they lose [on their cloud businesses]. But this is not a sustainable role. You can only go so [far] with price drops."

Greg Williams, chief technology officer at Los Angeles-based law firm Hooper Lundy & Bookman, said it's not price that keeps him from using public cloud storage; he just doesn't have enough data to make it worthwhile. And if he did, he would consider other factors.

"I think it's gotten to the point where it's not the major factor," Williams said of price. "It's a lot of other variables, like the interface, security and the network. The price is already reasonable, but making it work is the hard part. A lot of people already have saturated Internet connections. If I do my backup to the cloud and throw more traffic on it, it will impact users."

IDC's Nadkarni said it's difficult to determine if competitive cloud storage pricing lures more organizations.

"They're very cagey about how many new customers they get," he said. "They don't come out with numbers. When you go to an Amazon analyst event, they don't give out that data. Google does not talk to anyone, and Microsoft does not provide that data."

Nicos Vekiarides, CEO of cloud gateway vendor TwinStrata, partners with public cloud providers, but said he can't quantify if these price reductions boost cloud storage sales.

"People are getting used to the price drops," Vekiarides said. "Certainly, when Amazon announces a price drop, we see an uptick in traffic to our website. But actual sales are a slow process. It's a 30- to 60-day process."

The cost per gigabyte is only one expense organizations need to consider when moving to the cloud. If you're storing less than 50 TB, storing data in the cloud might be cost-prohibitive because of other factors, said Terri McClure, a senior analyst at Milford, Mass.-based Enterprise Strategy Group.

"It's not just the cost per gigabyte," she said. "It's the transaction costs per I/O. It's about better understanding all of the cost implications of activity up front. While AWS is very up front about their costs, customers don't always understand that there is a charge for accessing data. [The price war] is all about once you get in, you're less likely to leave. It's a race for content ingestion."

While Amazon, Google and Microsoft are alive and well, the ghost of Nirvanix serves as a reminder that any cloud that owns your data can turn to vapor.

"Everybody got a sober message from that," Hooper Lundy & Bookman's Williams said of Nirvanix. "People have become more aware."

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This is a great article, really touches on a lot of important points, well done. To me, the biggest issue for cloud providers is that every business (and they’re all joining the cloud now) needs something a little bit different, which is why you see so much volatility in the pricing. For instance, I work as an assistant manager, and my company has over 100 users and we do small work (in terms of storage space taken per file). We just needed someone that could give us just enough storage space that’s not too expensive, but can also support sub users and without breaking the bank. We picked DriveHQ for the simple fact that while their storage pricing wasn’t as good as some we looked at, their additional user pricing was only $6 per user. But again, consider if you’re a small business with only two or three users, but a lot of storage space needed, you might go for Microsoft or Google or whatever. It really just depends on what the business needs, and I just don’t see a Facebook like company that absolutely dominates the cloud sphere. At least not in the near future.
No offense, but how the hell am I supposed to understand the context of what $6 means if you don’t even give a competitors price? That could still be really bad, especially if it’s on a month to month basis ($6 for 100+ users every month? It doesn't sound too fun).