Google and Pricing: High Stakes WalMarting

March 26, 2014

I read a number of write ups about the new Google cloud pricing. The main idea, in my opinion, that  unifies the different reports is, “Everybody loves a bargain.” Consider “Google Slashes Cloud Prices: Google vs AWS Price Comparison.”

The essay-editorial begins with the invocation of the Google-Amazon joust:

Google threw down the gauntlet to challenge AWS public cloud supremacy by announcing significant price reductions across its Google Cloud Platform. The eye-opening price cuts covered compute (32-percent reduction), storage (68-percent reduction), and BigQuery (85-percent reduction). Google also signaled that future reductions could follow Moore’s Law — citing that historically public cloud prices have dropped only 6 to 8 percent annually as compared to 20- to 30-percent reductions in hardware prices.

The fact that neither Amazon nor Google provide much detail about their actual costs, profits, number of customers, and goals for their cloud services is not of much interest. Explanations of how pricing thresholds operate and migrate excite little curiosity.

Google, playing the Google Search Appliance card, seems to suggest that Amazon’s pricing is complicated. Yep, it is and it is very difficult to pin down with confidence what something will cost until the bits have been chomped and the Amazon accounting system processes its inputs and bills the customer. There is chatter about “sustained use” pricing, on demand pricing, and heavy reserved instance pricing, and in the article I have used as a pivot point for my comments, a cheer for RightScale’s services. These will help the cloud customer figure out what cloud computing costs.

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See http://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/single-firm-conduct/predatory-or-below-cost

Several observations:

First, the pricing is an example of the WalMarting of technical services. Doesn’t the entire world want lower prices? Once a market has been “won,” what happens? Creative destruction? I refer you, gentle reader, to WalMart’s challenges to rekindle (pun intended) that Sam Walton fire. The profit flat line is not good news to some WalMart stakeholders. But the Google pricing is little more than an old-fashioned price war in a Walton-like march for market share.

Second, Amazon has a bit of a cost problem. The murky Amazon financials, the hard to figure out side companies, and the blurring of revenues from product and services lines are tough to parse. Amazon is working overtime to generate no friction revenue (Prime pricing) and constrain costs. The results are a robust top line and growing pressure on expenses at “everyone’s favorite” online store. Google is cutting prices at a time when Amazon is maybe less than prepared for a price war.

Third, in my experience no technology innovation or technology paradigm shift delivers consequences easy to foresee. The jump to cloud computing may have economic and technical consequences that neither cloud customers nor cloud service providers think much about. As a result, the famous surprises accompanying new technology disrupt some well crafted budgets created in the grip of spreadsheet fever.

I see an old fashioned grab for customers. The impact on small town shops, employees, suppliers, and patrons is of little relevance. Competition is fascinating, particularly when the decision makers move on and let the faux Sam Walton’s deal with the consequences of WalMarting.

For me, I am okay with data on my servers and old fashioned back ups under my control. I am okay with old fashioned locally installed software. I am okay with working on an old fashioned boat anchor computer. In short, I am okay with the cost control disciplined management of technology makes possible.

I am less than okay with abrogating control to outfits operating “out there.” Is technology any more reliable, understandable, or manageable when located on the network?

I would check online but Time Warner’s cable connection is very slow this morning. My T Mobile hot spot is not connecting again. That’s life in the modern world of Harrod’s Creek but not in the go go environs for hyper enthusiasts talking about red herrings and baloney. Prices can change. Prices may be misleading. My uncle Vladimir used to say:

In the house of the hanged man, the mother does not mention the rope.

Stephen E Arnold, March 26, 2014

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