Hochfeld: Will AWS Face a Price War?

Bert Hochfeld takes another look at Amazon’s AWS in his latest article and, among other things, wonders whether AWS and Microsoft are about to engage in a price war over cloud pricing:

In an excellent article that appeared on this site a few days ago, contributor Joseph Mwangi wrote about a series of price cuts that Microsoft (NASDAQ:MSFT) Azure had announced in some segments of its product line. I might, however, have turned the title around and asked if Microsoft can afford to have a price war with Amazon. And I would have concluded it cannot, and logic says it will not choose to go there.

Mr. Mwangi surmised that the price cuts were in response to AWS announcing that it was to open another of its regions in France a few weeks ago. I do not think the two items are particularly related. The entire business ethos of AWS is built on growing more rapidly than the market, and opening regions is one of the things it does. The company has announced plans to open multiple regions. A couple of months earlier, AWS opened its Mumbai, India, region. Other new regions coming soon include London, Montreal, Ohio and Ningxia, a large city in China…

In addition to the new regions, the company will open 13 new “availability zones” on top of the 35 it has been operating. Amazon’s architecture is built on having multiple zones and regions which allow users to experience optimal availability, fault tolerance and scalability when compared to the performance possible from a single data center.

There are, to be sure, commentators on some of my earlier articles who have suggested that there are other ways to achieve the same results without building multiple data centers, but it is considered by most industry observers to be the appropriate strategy to follow in order to grow the availability of the network for an ever-increasing user population. I don’t know, to be sure, but I doubt that Microsoft lowered some of its prices to respond to Amazon’s planned region in Paris - I do think it is just part of the business as a whole. But the question of a price war in the space is not one to be dismissed casually, even if the opening of any particular data center is unlikely to be a precipitating factor.

Hochfeld also discusses the competing cloud services being offered by Google and Oracle, so be sure to read the whole thing at http://seekingalpha.com/article/4012037-amazon-web-services-…

Matt
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People have a terrific need to comment whether they know or not what they are talking about (Matt, I’m not talking about you but about the article you quote).

In addition to the new regions, the company will open 13 new “availability zones” on top of the 35 it has been operating. Amazon’s architecture is built on having multiple zones and regions which allow users to experience optimal availability, fault tolerance and scalability when compared to the performance possible from a single data center.

There are, to be sure, commentators on some of my earlier articles who have suggested that there are other ways to achieve the same results without building multiple data centers, but it is considered by most industry observers to be the appropriate strategy to follow in order to grow the availability of the network for an ever-increasing user population.

This week my broker experienced a serious outage in their trading system despite having two data centers which normally back each other up. At one data center the connecting optic fibers were cut at street level and at the other they had technical malfunctions. Two data centers were not enough to guarantee continuos service.

The idea that Microsoft would lower prices because Amazon is opening new regions just does not make sense to me. A different potential motive showed up yesterday which I commented on at the New Paradigm Investing board:

Amazon + VMware vs. Microsoft
Oct 13, 2016, 2:58pm PDT

Amazon Web Services has partnered with cloud giant VMware, a longtime Microsoft foe, to offer hybrid public-private cloud-computing services.

The strategic alliance – which allows companies to run VMware’s software on Amazon’s public cloud infrastructure – will bolster AWS’ efforts to compete with Microsoft’s Azure.

http://discussion.fool.com/amazon-vmware-vs-microsoft-32433123.a…

Denny Schlesinger

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“Two data centers were not enough to guarantee continuos service.”

This is where cloud service companies shine - you can use their cloud as a fail-safe backup for critical operations/data. The assumption is that they will build in enough redundancy to guarantee 100% uptime.

Back in the 1990’s, I worked at West Publishing, which later became part of Thomson Reuters. They had to have their legal database service available 24/7 to lawyers all over the world, and they had a world-class network. I remember barely any downtime while I worked there. They had a data center in a bunker-like area near their office buildings in suburban St. Paul. I don’t know the design, or how it evolved from then until now, but it would be very interesting to know. They may even offer cloud services these days.

I don’t even know if Thomson Reuters is publicly traded, or how their overall network is now laid out, or how intertwined the different divisions are.

Sorry to raise more questions than answers, but I mainly wanted to point out that there have existed companies with first rate data access, that’s it’s not a new thing. That level of service is fairly rare, and likely expensive; everywhere else I’ve worked had more network downtime.

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The assumption is that they will build in enough redundancy to guarantee 100% uptime.

One can even have a primary data center in the US with fall back to one in Europe in case the US one is swallowed by an earthquake or whatever.