Cloud Startup ProfitBricks Says Amazon's Cloud Price Cuts Are Deceiving


On Wednesday, cloud startup ProfitBricks cut pricing for its infrastructure-as-a-service portfolio by 50 percent.

But more notable, at least in the context of a cloud computing market that doesn’t often see trash talk, was ProfitBricks Co-Founder and CMO Andreas Gauger's assertion that Amazon has been downplaying the margins it makes from selling cloud services and creating the impression that it's scraping by on razor thin margins.

Cloud services are way more profitable than Amazon lets on, according to Gauger.

"Unlike the big players, we do not talk about a fake price war and fake low margins. We just act," Gauger said in a Wednesday blog post. "Our price drop is on what customers actually buy every day, not some small service or derivative of cloud instances that have limited appeal."

[Related: As Microsoft Marches Into Cloud, Its Already Complex Licensing Gets Even More Baffling]

Comparing cloud pricing between vendors is hard to do, but in a press release, ProfitBricks offered a side-by-side comparison with Amazon to back up Gauger's claims.

The price of a general purpose Amazon EC2 M1 Medium instance with 1 core, 3.75 GB of RAM and 250 GB of block storage is $0.155 per hour or $111.40 per month, while ProfitBricks claims its comparable offering costs $0.0856 per hour or $61.65 per month.

Based on this comparison, ProfitBricks says its cloud pricing is "at least 45 percent cheaper" than Amazon, and Rackspace, for similar instances.

Neither Amazon nor Rackspace could be reached for comment.

How is ProfitBricks, a Cambridge, Mass.-based startup founded in 2010 that Gauger says currently has between 400 and 500 customers, able to pull this off?

Gauger says it's because cloud services are actually quite profitable. If ProfitBricks sold its services at the same price as Amazon and Rackspace, its margins would be much higher than the 60 to 80 percent that Amazon considers "high margin," he said.

"Amazon always makes the impression that it's lowering prices. But in reality, its gross margin is around 80 percent. That's why it's not difficult to undercut Amazon on pricing," Gauger told CRN in an interview.

Amazon dominates the IaaS market and runs its cloud business under a thick cloak of secrecy. At this stage of the cloud game, Gauger's comments are some of the brashest vendor trash talk to date -- that is, if Oracle CEO Larry Ellison isn't included in the assessment.

ProfitBricks also claims a performance advantage over its more established competitors. When processor, disk and network speeds are taken into account, ProfitBricks' cloud servers are twice as fast as Amazon and Rackspace, Gauger said.

ProfitBricks' IaaS uses Infiniband, a supercomputing technology that allows for speedy networking connections between virtual machines, as well as flexible VM sizes.

ProfitBricks uses a "scale-up" approach, which doesn't force customers to pick from a menu of set server configurations, and instead lets them choose the amount of CPU cores, RAM and storage they need.

"If you want more RAM, you're not forced to buy more CPU, too. With us, you can configure your VMs any way you want," Gauger told CRN.

PUBLISHED AUGUST 2, 2013