Tuesday, July 28, 2009

Safe Bet

Microsoft's Azure pricing was announced earlier this month. There have been a few blog posts publishing the numbers and comparing prices. The bottom line is that pretty much[1] Microsoft priced their offerings at price parity with Amazon Web Services. The question that kept coming to mind was 'Why parity?'.

Microsoft has market dominance, a relatively captive developer audience, large data center experience, and cash. Azure is designed to remotely run customer code under their control on Microsoft's software stacks. The Azure developer experience is similar in style to the desktop development experience. Azure should be efficient since they are leveraging Microsoft's massive data centers and operational expertise. They have the capital for a prolonged battle.

Meanwhile, AWS prices have been relatively fixed for some time. AWS storage and small-compute instances have remained the same for years. While Amazon has offered new services like reserved instances at lower prices, and tiered outgoing bandwidth prices, the US pricing has remained unchanged. This is an amazing feat given how technology prices fall over time. Sounds like a pricing target to me.

Why not get banner headlines by undercutting AWS? Governments would not blink if Microsoft took on the world's largest on-line retailer on price. Would they? Azure is late and behind. Wouldn't lower prices demonstrate that Microsoft is serious about Azure and Cloud Computing? Azure has the benefit of using modern hardware in a market with two year old pricing. Microsoft has their own large data centers in low cost locations. Couldn't Azure use these for their advantage? If anyone could take on AWS on price, Azure could do it.

Why wasn't Azure's pricing set lower? I don't know the answer. I suspect that, years ago, AWS set aggressive, forward-looking prices based on future efficiencies that they felt they would achieve. They have pretty much executed on plan. If so, there isn't much pricing room for a newcomer to undercut them. Given the large capital investments, automation complexities, low price-per-unit, high unit volumes, and thin margins, any small pricing mistake will compound and drastically affect the bottom line. Azure went with the safe bet, pricing parity.

AWS's pricing may be one the greatest barriers to entry for the next generation of computing. If so, talk about beginner's luck.

[1] There may be a few exceptions with Microsoft's Web Role and SQL Azure. Web Role and AWS CloudWatch price difference may be based on different technical approaches and the resources used, with Web Role potentially being the higher of the two. The SQL Azure price per month has processing and storage bundled, whereas, SimpleDB prices storage and compute component based upon actual usage per month.


  1. I think you're right that AWS has set a trend in pricing, both in the pricing model and in the prices themselves. Other IaaS providers such as Flexiscale and GoGrid are following a very similar pattern and only differing on the technical capabilities of their services.

    In the PaaS world, there's more room for different pricing models because of the variety in the services the platform offers and the target audience. This should allow consumers to find a service that better matches their application and usage pattern.

    For instance, Google App Engine has a pricing model based on the total CPU-hour usage of the web app. This is similar to how Sun priced the Network.com/Sun Grid utility offering with CPU-hours consumed for an entire job.

    It might look more expensive than an IaaS model at first glance (see Garett Rogers' short-sighted ZDnet article), but once you realise that you're comparing apples and oranges, PaaS looks a lot more attractive.

  2. As you point out, I was referring to IaaS. I agree that the PaaS pricing model is wide open. The platform definition is wide open as well. A key will be how vendors and customers agree on the value the PaaS offerings. Reducing the PaaS value to just the IaaS resources consumed will undercut the PaaS market. But, that's another blog post.