Price Wars: Parallels Between Airlines and the Public Cloud
In the last couple of months, the three largest cloud providers in terms of market share—Google, Amazon Web Services and Microsoft—each announced substantial price cuts. This is a serious price war, like what used to happen in the gasoline industry a generation ago. This time, Google initiated it, with AWS and Microsoft quickly following suit.
Since Amazon opened AWS for business in 2006, it has dropped its rates a whopping 43 times. Name one—just one—mainline business that has dropped its prices more than, say, twice in the last decade. You'll be hard-pressed to identify it.
Ostensibly, this is good for the consumer, but what's really behind this movement? Storage Station wanted to get some perspective on this continuing phenomenon, so we connected with a longtime storage industry source, Praveen Asthana.
Asthana is Dell's former storage chief who's now chief marketing officer of Gravitant, an Austin-Texas-based software maker that has a platform to enable cloud-service brokerages.
Asthana has seen this type of competition ebb and flow during his 30 years in the data storage business.
"All these price flurries reminded me of the U.S. airline industry, whose members ferociously match price cuts that any airline makes," Asthana told The Station. "The net result of the airline price wars is that flying has never been cheaper, but every other aspect of flying has suffered: poor service, overbooking, add-on fees for just about everything. And airlines are perennially flirting with bankruptcy, so the flying experience isn’t likely to improve."
So, Asthana asked, if we wind the clock forward for the public cloud computing industry, are we headed for a similar future as that of the airlines after all these cloud price wars have played out?
"Customer support by IaaS [infrastructure-as-a-service] cloud providers will probably be an early casualty [AWS is already at bare minimum, unless you pay a lot extra], add-on fees will proliferate in scale and complexity, and cloud providers will increasingly rely on overbooking tactics [like 'Sorry we had to kick your workload off, but here’s a $150 coupon for future use to make up for that']," he said.
Even with all these tricks, the economics of being a cloud provider could become problematic. Smaller cloud providers, like in the airline industry, have a couple of choices: provide a niche service that lets them be profitable but remain small, or be bought up as consolidation ramps up.
So who wins in such a future?
"It's interesting to look at the airline industry again for parallels. In a world of complex and dynamic pricing, proliferating add-on fees and varying services, the winners in the airline industry appear to be companies that can help users cut through the complexity and make the optimal choices," Asthana said.
"These are companies such as Expedia, Priceline, TripAdvisor and Travelocity—in other words, the broker/advisors of the airline industry. Customers understand the broker is on their side and appear to value the multi-provider aggregation and comparison services provided."
Could we see a similar phenomenon in the cloud computing industry, which appears to have a lot of parallels with the airline industry in terms of obtuse, dynamic and complex pricing, add-on fees and differences in services? Could cloud brokerages (the equivalent of Expedia) become more valuable than commodity IaaS cloud providers?
"It will be interesting to see who the winners will be in this massive shift to cloud over the next few years," Asthana said.
Amen to that.