With Amazon Web Service's (AWS) cloud infrastructure and customer base dwarfing its competitors, does AWS have greater leeway to reduce prices than rivals in the long run?

Google's VP of engineering talks economies of scale in the cloud Watch Now

Google and Amazon Web Services have been fighting price wars for years, driving down the cost of spinning up servers in their cloud platforms in an attempt to be the cheapest game in town.

That wrangling continues: this month Amazon Web Services (AWS) announced its 62nd price cut, while earlier this year Google lowered the cost of reserving cloud infrastructure upfront by introducing Committed Use Discounts (CUD).

In reality, the options for configuring and paying for cloud infrastructure vary so greatly that what typically determines which platform, AWS or Google Cloud Platform (GCP), will be the most cost-effective is how that platform will be used. However, recent analyses commonly cite GCP as the slightly cheaper option for compute and storage.

SEE: Google touts more responsive cloud services as it expands in Europe

But with the size of Amazon Web Service's (AWS) cloud infrastructure and customer base dwarfing its competitors, does AWS have greater leeway to reduce prices than rivals in the long run, courtesy of economies of scale?

Not to any meaningful extent according to Ben Treynor Sloss, Google's VP of engineering.

"It's fair to say that all of the major cloud providers are into the scale-level where economies of scale, the returns you get, are de minimis," he said.

"For example, what I've read about Amazon's deployment model, where they'll basically plonk down three buildings that are about one kilometer away from each other. There are no economies of scale left at that point."

John Dinsdale, chief analyst and managing director for Synergy Research Group, said datacenters architects at AWS share the view that "beyond a certain size, the economies of scale that can be achieved in an individual data center drop off rapidly".

However, Amazon's position as the biggest and fastest growing cloud infrastructure provider presents AWS with other opportunities to drive down prices, according to some analyses of the cloud market.

One overview estimated that the price at which Amazon sells cloud infrastructure is higher in order to limit demand to a level where it can be satisfied. Therefore as Amazon expands its infrastructure, so it is able to lower these prices, potentially giving Amazon another advantage in the ongoing price war.

While there aren't meaningful differences in the economies of scale between the major cloud operators, according to Sloss, the price at which cloud providers can offer cloud infrastructure is generally lower than the cost of firms running them in-house, he said.

"That's where it becomes an interesting value proposition," he said, reinforcing the notion that as the price of public cloud infrastructure continues to fall, building private or hybrid clouds will become hard to justify on cost grounds.

Image: Google

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