Google Wins In Amazon Cloud Price Battle - InformationWeek

InformationWeek is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

IoT
IoT
Cloud // Infrastructure as a Service
Commentary
3/28/2014
12:10 PM
Charles Babcock
Charles Babcock
Commentary
Connect Directly
Twitter
RSS
E-Mail
50%
50%

Google Wins In Amazon Cloud Price Battle

Let's put this week's cloud price cuts in context. Cash-rich Google has made it harder for Amazon to profit on AWS. Whether or not Google steals a ton of AWS customers, Google wins.

its cash flow to build up Amazon content and build out on-land distribution for online retail. The best summary I've seen on this is by Motley Fool writer Siddhart Dalal. A year ago he said, "Amazon spends almost every dime it earns, keeping the net profit down as close to zero as possible."

Skillfully building out ecommerce systems is cost effective. Building out a physical distribution system -- Amazon.com will have its own truck fleet labeled "Fresh" -- uses more money than it brings in and must be amortized over many years. Amazon.com wants to deliver fresh meat and vegetables the day you order them to major US population centers, and it wants to make as many two-day deliveries of retail goods as customers want, provided they've paid a $99 annual fee for Amazon Prime (just increased from $79 a year). Those deliveries, repeated often enough, could also add to Amazon's costs.

Amazon Web Services is talking as if its price reduction for instances and storage is just routine, but the guess here is it's a deeper reduction than Amazon wanted, due to the emergence of price competition. For the first time, it's having to reduce prices to maintain its customer base in the face of a price-conscious competitor, at the same time it's having to raise prices elsewhere.

In this price-slashing competition, the cash-rich competitor with fewer customers can benefit either way. Google may not steal many customers from AWS, but Amazon.com will have a harder time making money on AWS and continuing its rapid pace of overall business expansion.

Are you better protected renting space for disaster recovery or owning a private cloud? Follow one company's decision-making process. Also in the Disaster Recovery issue of InformationWeek: Five lessons from Facebook on analytics success. (Free registration required.)

Charles Babcock is an editor-at-large for InformationWeek and author of Management Strategies for the Cloud Revolution, a McGraw-Hill book. He is the former editor-in-chief of Digital News, former software editor of Computerworld and former technology editor of Interactive ... View Full Bio

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.
Previous
2 of 2
Next
Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
jgherbert
50%
50%
jgherbert,
User Rank: Ninja
3/31/2014 | 10:27:50 PM
Winner
And the winner is... the customer? Competition is good, isn't it?
David F. Carr
50%
50%
David F. Carr,
User Rank: Author
3/31/2014 | 8:51:22 AM
Re: Google cash on hand: $58.7 billion
Amazon has also been a vicious competitor, undercutting entire industries on price, which I'd think would make it hard for them to cry foul.
Charlie Babcock
50%
50%
Charlie Babcock,
User Rank: Author
3/31/2014 | 1:14:49 AM
Re: Google cash on hand: $58.7 billion
"Google will have to ensure Amazon remains a viable competitor..." Google could slow Amazon's rate of expansion without arousing the scrutiny of the Anti-Trust Division, couldn't it? Google and Amazon don't compete directly in search. They do compete in cloud services,  but Amazon has a much bigger market share there. Even if Google were decreed a monopoly in search, Amazon isn't competing in search. Google would have to be using one monopoly to restrain trade or gain another before the Jusitice Department would have the legal basis to step in, and even then, it might have a tough time making a case. 
Gary_EL
50%
50%
Gary_EL,
User Rank: Ninja
3/28/2014 | 11:17:33 PM
Re: Google cash on hand: $58.7 billion
Google will have to make sure that Amazon remains a viable competitor, or it will start to come under the scrutiny of the Federal Anti-trust authorities.
Charlie Babcock
50%
50%
Charlie Babcock,
User Rank: Author
3/28/2014 | 12:49:18 PM
Google cash on hand: $58.7 billion
They don't refer to cash assets in the same way, but at the end of 2013, Google had $58.7 billion in the bank and Amazon.com had $574 million. Which of these two balance sheets is hurt more by cloud service price cuts?
News
COVID-19: Using Data to Map Infections, Hospital Beds, and More
Jessica Davis, Senior Editor, Enterprise Apps,  3/25/2020
Commentary
Enterprise Guide to Robotic Process Automation
Cathleen Gagne, Managing Editor, InformationWeek,  3/23/2020
Slideshows
How Startup Innovation Can Help Enterprises Face COVID-19
Joao-Pierre S. Ruth, Senior Writer,  3/24/2020
White Papers
Register for InformationWeek Newsletters
Video
Current Issue
IT Careers: Tech Drives Constant Change
Advances in information technology and management concepts mean that IT professionals must update their skill sets, even their career goals on an almost yearly basis. In this IT Trend Report, experts share advice on how IT pros can keep up with this every-changing job market. Read it today!
Slideshows
Flash Poll