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Cloud Price Reductions: A Definitive Analysis of 2013 Trends

Update: March 27, 2014

Cloud prices are constantly dropping as we noted in this article. This week first Google and then AWS announced significant new price changes that will be very attractive to many cloud users. RightScale provides a detailed analysis of these price cuts in AWS Responds with Price Cuts: Google vs AWS Pricing Round 2.

 

As organizations flock to cloud services — and cloud providers battle for market share — public cloud prices in 2013 continued on a steady downward trend. RightScale analyzed price reductions from four leading public cloud providers in 2013 (AWS, Rackspace, Google Compute Engine, and Azure) and found that the pace of price reductions continued to accelerate as Google, Microsoft, and Rackspace stepped up their efforts to compete with AWS.

IDC reported in December 2013 that “cloud spending, including cloud services and the technology to enable these services, will surge by 25 percent in 2014, reaching over $100B.”

Looking at the data, RightScale observed several trends:

  • Amazon Led on Price Reductions: In 2013, AWS set the standard in terms of frequency and size of reductions, forcing others to follow. AWS had the most price reductions, the largest price reductions, and focused on reductions in compute services, which are typically the highest percentage of a company’s cloud bill.
  • Cloud Prices Continued to Drop: In 2013, the 4 public cloud providers rolled out 25 price reductions across compute, storage, and networking, up from 22 price reductions in 2012. AWS continued to lead the way, announcing 12 price drops in 2013, down from 13 the prior year. Azure, Google, and Rackspace stepped up their pace, accounting for a combined 13 reductions in 2013, up from 9 reductions in 2012. It is important to note that price drops don’t always target all of a provider’s resources or services. Sometimes price drops target particular instance sizes, types, or regions.
  • Reductions in Compute Prices Accelerated: There were twice as many price reductions on compute services in 2013 (10 reductions) compared to 2012 (5 reductions). This is good news for enterprises who still allocate the vast majority (70 percent to 90 percent) of cloud spend to compute. It is also worth noting that many of the recent new instance types offer better price/performance ratios, such as the AWS c3, m3 and i2 and Windows Azure A8 and A9.
  • Reductions in Cloud Storage Prices Got Larger: Cloud providers also focused attention on storage prices in 2013. Storage saw 6 price reductions across the 4 vendors, down from 8 last year. However, the average size of the price decrease was larger in 2013 (32 percent) than in 2012 (20 percent).

For the complete report with an in-depth analysis of 2013 cloud price reductions, download the Cloud Pricing Trends White Paper.

Amazon Led on Price Reductions
RightScale evaluated 2013 pricing trends and saw that AWS continues to drive prices down more than other cloud providers. AWS had the most price reductions, had the largest pricing reductions on average, and had the most reductions on compute, which remains the largest portion of enterprise public cloud spending.





Cloud Prices Continued to Drop
If you are tracking cloud costs across different public and private clouds, it can be difficult to keep up. In 2013, this only got harder as the frequency of pricing changes increased.



Reductions in Compute and Storage Prices Accelerated
While the number of compute reductions doubled in 2013, the size of those reductions showed little change. Conversely, the number of storage reductions went down, but the size of the reductions went up.

Data from RightScale shows that 70 to 90 percent of overall cloud costs come from compute services. Price drops for other services, such as S3 or GCE bucket storage, will not benefit customers as much since they are usually not a significant percentage of the overall cloud bill.







Conclusions
Based on the cloud provider pricing trends in 2012 and 2013, RightScale makes these observations:

  • Price wars continue: The frequency of cloud price reductions continued throughout 2013, and there were occasionally periods of time where providers seemed to react to each other, resulting in several reductions in a concentrated period. In 2013, the average price reduction for cloud services was 23 percent, which is comparable to the size of drops in 2012 (also 23 percent). AWS led the way in 2013 with price reductions averaging 38 percent, followed by Azure (26 percent), Rackspace (23 percent), and Google (9 percent).
  • Expect a broad impact: In 2013, cloud providers made the largest number of price reductions in areas that impact users the most. One notable example is compute services, which saw 42 percent of the reductions in 2013 and which by far represents the largest part of corporate cloud spend.
  • AWS is setting the standard: In both 2012 and 2013, AWS set the standard in driving prices down. It has been leading the way in terms of in both frequency and size of reductions and forcing others to follow.

5 Tips for Managing Your Cloud Spend
Cloud prices continue to drop, making the unit cost of cloud computing even more attractive compared to traditional data centers. However, these reductions are being accompanied by significant growth in cloud usage. As usage grows, especially in large enterprises, public cloud bills become an increasingly significant line item in IT budgets. As a result, companies need to develop new processes and tools to optimize these cost.  

"The market is rife with confusing models and metrics. Integrated cloud analytics and management tools such as those from RightScale can help consumers understand this complex landscape, and take actions to manage their cloud expenditure.”

Owen Rogers, Senior Analyst, Digital Economics at 451 Research


Here are 5 tips for managing your cloud spend:

  1. Analyze the Past and Forecast the Future: The reality is that to accurately forecast future cloud spending, you can’t just rely on past spending trends. You need to account for variables that only you can predict, for example the future launch of a major product or campaign, or seasonal trends. More companies are doing this kind of forecasting. Get a free trial of RightScale Cloud Analytics to analyze past spend and forecast future spend.
  2. Plan for Hybrid and Multi-Cloud: Hybrid cloud computing is growing in popularity. Gartner predicts that 50 percent of enterprises will use hybrid cloud by 2017. This brings new challenges in managing and forecasting cloud costs. Be sure to have tools or processes in place that allow for estimating the costs of your entire cloud portfolio, including private and hybrid clouds. You’ll want to compare costs of different cloud options to choose the best venue for each application.
  3. Avoid Wasting Cloud Resources: Like the lightbulb that gets left on or the faucet that drips, it’s easy for cloud users to forget to turn off or scale down unused cloud resources. Often the cost of instances left running unnecessarily or services that are overprovisioned can far outweigh price reductions from a cloud provider. RightScale customers use features like automation, alerts, monitoring, and auto-scaling to avoid wasted resources and wasted spending. Review the vibrant open source ecosystem around RightScale to find enterprise grade projects, such as the “Terminator” script.
  4. It’s Not Just About Price: Price is only one of the factors you need to consider in choosing the right cloud provider. You need to have a good understanding of the performance required. Many enterprises have a portfolio of cloud services, including public and private, to meet the requirements of varied applications. Each cloud provider offers differing combinations of price, performance, features, and support.
  5. Tie Insights to Action: There are a few tools available to help you identify ways to analyze past cloud spending. However once you identify a change that you want to make, you’ll need a way to take action on those changes. As Holger Mueller, vice president and principal analyst for cloud computing at Constellation Research, says, "Beware the false analytics of vendors who offer data on cloud costs and usage, but don't tie that data to a derived action or guidance.”

RightScale Cloud Analytics Can Help

Cloud pricing is confusing, and keeping up with the many changes is difficult. RightScale is a trusted partner with solutions and services that help you visualize, forecast, and optimize your cloud costs. Get a free trial of RightScale Cloud Analytics.

RightScale Cloud Analytics Free Trial


To get the complete report on 2013 cloud price reductions, download the Cloud Pricing Trends White Paper.














 

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