Google Wins In Amazon Cloud Price Battle

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.

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