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

Enlarge this image toggle caption Connie Zhou/AP Connie Zhou/AP

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.

Enlarge this image toggle caption Courtesy of Amazon Courtesy of Amazon

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.

Enlarge this image toggle caption Weinberg-Clark Photography/Courtesy of Google Weinberg-Clark Photography/Courtesy of Google

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.