Cloud Price War: Amazon Drops AWS Rates As Microsoft Windows Azure Goes Live

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The move comes as Microsoft officially launches its Windows Azure cloud computing platform as a pay service, prompting some industry watchers to see the AWS rate decrease as a signal of a price war about to erupt.

According to Amazon, the reduced charges include Amazon EC2, Amazon S3, Amazon SimpleDB, Amazon SQS, Amazon RDS and Amazon VPC.

"We are constantly working to drive our costs down and become more operationally efficient," Amazon's Jeff Barr wrote in a blog post. "We then pass on those cost savings to our customers in the form of lower prices."

Effective February 1, AWS reduced the price of the first 10 TB per month from 17 cents per GB to 15 cents; the next 40 TB per month is reduced from 13 cents to 11 cents; the next 100 TB per month is lowered from 11 centers to 9 cents per GB; and over 150 TB per month is now reduced from 10 cents to 8 cents.

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Chris Pyle, CEO and president of Champion Solutions Group and Champion Cloud Services, a Boca Raton, Fla.-based solution provider, said Amazon reducing the rates is another sign that the cloud pricing war will soon hit full stride. Pyle said since the infrastructure is already in place, cloud "landlords" like Amazon can offer discounted rates.

Amazon's reduced pricing comes as Microsoft officially launches the commercial version of its Windows Azure cloud computing platform as a paid service and is charging 12 cents an hour for "compute time." Meanwhile, Microsoft is running an Azure promotion from customers that sign up for a six-month subscription. For $59.95 per month, developers can get 750 hours of Azure compute time, 10 GB of storage, and one million storage transactions, along with 7 GB of inbound data transfers and 14 GB of outbound data.

"Today's announcement of AWS reducing its outbound pricing is really not a surprise when you think about it," said Frost & Sullivan industry analyst Vanessa Alvarez, adding that Microsoft releasing Windows Azure into general availability and charging for it as of this week may have stoked the fires and prompted the Amazon price cut. "Amazon feels the need to remain competitive. Are they feeling threatened? Probably not, but they certainly see Microsoft as a formidable competitor."

Along with taking a swipe at Microsoft, the AWS price decrease is also aimed at Amazon rival Google and its App Engine cloud computing platform, which is often available cheaply or for free.

Additionally, Amazon's AWS price reduction is going to spark a price war, commoditizing cloud infrastructure, Alvarez said, questioning how low prices can dip. Amazon keeps prices low by working closely with suppliers across its various businesses. Alvarez said that's a different tactic than traditional infrastructure vendors.

"The bigger question looms for Amazon AWS and it is: How are they making money off of this?" she asked. "[It's] still a mystery as AWS is not broken out in Amazon's financials and it's never discussed in earnings calls."

Along with reducing prices across the AWS portfolio, Amazon also lowered rates for data transferred out of its Amazon CloudFront content delivery network, also cutting rates by 2 cents per GB. Under the new structure, the first 10 TB per month will be 15 cents per GB; the next 40 TB is 10 cents per GB; the next 100 TB per month will be 8 cents per GB; the next 100 TB will be 7 cents per GB; the next 250 TB per month will be 6 cents per TB; the next 250 TB per month will be 5 cents per GB; the next 250 TB per month will be 4 cents per GB; and over 1,000 TB per month will be 3 cents per GB.

The recent price decreases continue a rate reduction trend within Amazon for its cloud computing services which an Amazon spokesperson called "just business as usual."

"In 2009, we were able to lower pricing across a number of areas," an Amazon spokesperson said Tuesday. "In January, we created new lower pricing tiers for Amazon CloudFront. In August, we were able to lower pricing for Amazon EC2 Reserved Instances. In November we lowered Amazon EC2 pricing."

In December, Amazon also reduced Amazon S3 and Amazon EC2 prices and launched a promotion for free inbound data transfer through June 30, 2010. Microsoft Windows Azure is also not charging for inbound data transfers until June.