The Price War Over The Cloud Has High Stakes For The Internet | KUOW News and Information

The Price War Over The Cloud Has High Stakes For The Internet

Apr 23, 2014
Originally published on April 23, 2014 5:02 am

This week, our tech reporting team is exploring cloud computing — the big business of providing computing power and data storage that companies need, but which happens out of sight, as if it's "in the cloud."

It's a timely topic, since there's a price war going on as tech titans aim to control the cloud market. Amazon Web Services, an arm of the e-commerce giant, is the reigning king of large-scale cloud services. If you've ever watched streaming TV on Netflix, clicked on a Pinterest pin, or listened to music on Spotify, you've used Amazon Web Services, or AWS.

"We delivered computing power as if it was a utility," says Matt Wood, Amazon Web Services' chief data scientist.

A decade ago, startups and other Internet companies had to set up their own data centers and computing backbones, which meant a serious capital investment up front and fairly fixed computing resources.

Now, cloud platforms like Amazon Web Services or its competitors — Google Cloud Platform or Microsoft Azure — provide that infrastructure by letting companies rent it out at a low cost. Think of it as the difference between generating your own power at home or just getting electricity from a grid.

"They can draw down exactly the right amount of energy that they need, whether it's to light a light or run a fridge," Wood says. "And they only pay for that electricity as and when they use it, and they pay for it for as much or as little as they need, as they're using it. So we offer computational resources in exactly the same way."

The effect for you is that new services, apps and startup companies — Airbnb is another AWS client — can spin up quickly, without much cost. And those companies can adjust to your needs faster.

"And that nimbleness that startups are so famous for is just as valuable inside large organizations," Wood says.

The eight-year-old Amazon Web Services was a pioneer in offering pay-as-you-go computing. And it makes big money — an estimated $3.8 billion in revenue last year. Its head start means AWS has had a near monopoly on large-scale cloud computing — a 2013 Gartner report estimates AWS controls five times the computing power of the next 14 cloud providers, combined. But now, competition is growing fierce.

"There will not be just one company that's the cloud provider," says Google Cloud Platform manager Greg DeMichillie. "There will be several."

Google recently slashed prices for its cloud services by 80 percent, starting a price war that the companies find themselves in now.

"We're going to continue to be very aggressive on that," DeMichillie says.

Amazon, Google, Microsoft and others are competing to dominate the cloud. The winner or winners will have a lot of control over the Internet. Their choices affect issues like data privacy, and as virtual landlords, their terms and prices could control who gets to build what on the Internet, and for how much.

"Snapchat didn't exist three years ago," DeMichillie points out. "You can go down your list of apps you probably have on your Android phone or your iPhone. Those exist because cloud platforms allow two developers with an idea to launch a service."

Gartner analyst David Smith says the price war is more about money than innovation.

"So if you have people on a 99-year lease type thing, going back to your landlord analogy, once you're there, it's difficult for them to move. That's the control point," Smith says.

For now, this competition means much cheaper bills for Internet businesses.

"That's good for consumers, it's good for developers, it makes cloud accessible to even more developers who have more financial constraints. So we just think it's a good thing for everybody," DeMichillie says.

Prices have fallen so fast that Amazon doesn't rule out the possibility that prices for its services could wind up at or close to zero.

"Yeah, I mean, where we can achieve better economies of scale, we'll continue to pass on those savings onto our customers," Wood says.

Copyright 2018 NPR. To see more, visit http://www.npr.org/.

RENEE MONTAGNE, HOST:

Small startups like Aereo often turn to big tech companies to provide infrastructure that makes up the cloud market. Two of the biggest are Amazon and Google, and a price war between those companies of their cloud services could affect the future of innovation on the Internet.

NPR's Elise Hu reports.

(SOUNDBITE OF THEME MUSIC TO TV SHOW, "MAD MEN")

ELISE HU, BYLINE: If you've ever watched streaming TV on Netflix, clicked on a Pinterest pin, or listened to music on Spotify, you've used Amazon Web Services. It's part of the same Amazon family that sell you stuff online. But Amazon Web Services or AWS is a different arm of the company. Matt Wood is its chief data scientist.

MATT WOOD: We delivered computing power, as if it was a utility.

HU: Internet companies need infrastructure, like processing power, and data storage, to run their businesses. A decade ago, that meant startups had to set up their own data centers and computing backbones. Now, cloud platforms like Amazon's, provide that infrastructure by letting companies just rent it out at a low cost. Think of it as the difference between generating your own power at home or just getting electricity from a grid.

WOOD: They can draw down exactly the right amount of energy they need, whether to light a light or run a fridge. And they only pay for that electricity as and when they use it and they pay for it for as much or as little as they need, as they're using it. So we offer computational resources in exactly the same way.

HU: The effect for you is that new services, apps and startup companies can spin up quickly, without much cost. And those companies can adjust to your needs faster.

WOOD: And that nimbleness that startups are so famous for, is just as valuable inside large organizations.

HU: The eight-year-old Amazon Web Services was a pioneer in offering pay as you go computing. And it makes big money, an estimated $3.8 billion in revenue last year. Its head start means AWS has had a near monopoly on large scale cloud computing. A 2013 report estimates Amazon controlled five times the computing power of the next 14 cloud providers, combined. But competition is growing fierce.

GREG DEMICHILLIE: There will not be just one company that's the cloud provider. There'll be several.

HU: Greg DeMichillie is Google's cloud platform manager. Google recently slashed prices for its cloud services by 80 percent, starting a price war that the companies find themselves in now.

DEMICHILLIE: We're going to continue to be very aggressive on that.

HU: Amazon, Google, Microsoft and others are competing to be the main landlords of the cloud. It matters because the winner will have a lot of control over the Internet. Their choices affect issues like data privacy and as virtual landlords, their terms could control who gets to build what on the Internet, and for how much.

DEMICHILLIE: Snapchat didn't exist three years ago. You can go down the list of apps that you probably have on your Android phone or your iPhone. Those exist because cloud platforms enable two developers with an idea to launch a service.

HU: Gartner Analyst David Smith says the price war is more about money than innovation.

DAVID SMITH: So if you had people on a 99 year lease type thing, going back to your landlord analogy, I think that's more the connection, you're locking people in. So once they're there, it's difficult for them to move. That's the control point.

HU: For now, this competition means much cheaper bills for Internet businesses - as Google's DeMichillie points out.

DEMICHILLIE: That's good for consumers, it's good for developers, it makes cloud accessible to even more developers who have more financial constraints. So, you know, we just think it's a good thing for everybody.

HU: Prices have fallen so fast that Amazon, the reigning cloud king, doesn't rule out the possibility that prices for services could wind up close to zero. Matt Wood.

WOOD: Yeah, I mean, where we can achieve better economies of scale, we'll continue to pass those savings on to our customers.

HU: A high stakes battle for the cloud, resulting in low, low prices.

Elise Hu, NPR News. Transcript provided by NPR, Copyright NPR.