Google Set To Up Ante In Amazon, Microsoft Cloud Services Price War

Google is stepping up its investment in cloud computing infrastructure in a bid to drive down the costs further for enterprise customers in the midst of a price war with cloud services rivals Amazon and Microsoft.

Google Senior Vice President and Chief Business Officer Nikesh Arora said the search engine giant intends to pass savings from lower digital storage costs to bring more customers to Google's infrastructure as a service offerings.

Arora made the comments Wednesday during a conference call to discuss the company's first-quarter financial results, even as Google posted lower-than-expected earnings for its first quarter.

[Related: Amazon Launches Memory-Packed Cloud Servers That Leave Microsoft's And Google's In The Dust ]

Google reported a three percent increase in net income of $3.65 billion on a 19 percent increase in sales to $15.4 billion. Earnings per share after stock based compensation charges were $6.27, down from the $6.41 Wall Street consensus estimate.

That did not deter Google from upping its cloud services investment in the midst of a price war with Amazon and Microsoft. ’We believe we have an absolute unique position from a cost structure perspective,’ Chief Financial Officer Patrick Pichette said during the call.

Constructing and expanding data centers is currently Google’s top capital expenditure, according to Pichette. The company is not willing to risk insufficient capacity as it grows the business, he said.

But Arora also cautioned shareholders and partners against placing too much emphasis in the gritty details that differentiate Google’s cloud business from that of its competitors.

’These are very, very, very early days if you think of the potential scope and scale of what this opportunity is,’ Arora said.

NEXT: Amazon Price Cuts Feed The Fire

Amazon fired the latest salvo in the cloud price war with Google and Microsoft last Thursday by offering more powerful memory-packed virtual servers than its rivals. Amazon's new R3 instances in U.S., Asia-Pacific and EU regions range from $0.175 per hour for an instance with two virtual CPUs, 15 GB of RAM and 32 GB of storage, to $2.80 hourly for an instance with 32 virtual CPUs, 244 GB of RAM and 2 SSDs with 320GB of storage each.

Google's corresponding high-memory instances range from $0.16 per hour for 2 vCPUs and 13GB of RAM to $1.31 hourly for 16 vCPUs and 104GB of RAM.

Microsoft's memory-intensive Azure instances range from $0.35 per hour for 2 virtual CPUs and 14GB of RAM to $1.41 hourly for 8 virtual CPUs and 56GB of RAM. But starting May 1, Microsoft will slash the price of its memory-intensive Linux server instances by up to 35 percent and memory-intensive Windows server instances by up to 27 percent.

The cloud computing business, while presenting enormous potential for the company, is estimated to account for about five percent of Google’s total revenues.

For that reason, it’s not worth agonizing over every specific pricing and service distinction between various competitors -- the industry is growing at a solid clip, and customers looking to transition from their legacy systems still don’t have many options, Arora said.

’There’s a lot of room for all of us to have a great time for many years,’ Arora said.

The important thing to keep in mind as to what sets Google apart, according to Arora and Pichette, is the company’s unmatched decade of experience in operating the world’s largest public cloud.

Eventually, benefits afforded by the utility computing model will bring just about every company into the cloud.

’There’s no efficiency compared to the efficiency of the cloud,’ Arora said. ’The shift is going to happen.’

For that reason, Google needs to focus on working with its third-party partners to get businesses and other users ’off their legacy systems and onto our cloud,’ Arora said.

Tony Safoian, CEO of Sada Systems, a solution provider in North Hollywood, Calif., is seeing a cautious migration among his customers, who are moving into the virtual realm one step at a time.

’There’s still a lot of awareness building we are having to do in our existing customer base,’ Safoian told CRN.

Businesses are beginning to understand the benefits, and many are lightening their IT footprint by transitioning some basic applications, like document management and email.

But software structures that don’t have a direct corollary in the cloud still make his customers nervous, Safoian said, especially when their IT specialists don’t understand how to convert those applications onto virtual platforms.

The customers who have already migrated to limited cloud services through Google Apps are the natural base for expanding into more advanced features offered by App Engine and Compute Engine, he said.

PUBLISHED APRIL 17, 2014