After cloud price cuts from Amazon, Google, and Microsoft, what's next?

As prices bottom out, cloud vendors will focus on feature sets, lock-in, and highly granular competition from specialists

Now that Google, Amazon, and Microsoft -- in that order -- have all engaged in a fresh round of price slashing for their cloud services, what's next beyond keeping prices mutually competitive?

From here on out, pricing won't be the main differentiator. Rather, cloud services will be forced to compete based on what business features they offer and how tightly they lock in customers, and they will be competing with companies that provide highly specialized types of clouds.

Feature sets. Certainly, cloud outfits already compete in terms of what features they offer, but those features have evolved as the cloud has become less exotic, more of a commodity, and more a business tool. Google's approach has been to woo businesses from the application developer and devops side; Microsoft has commodified the various aspects of Windows as a server platform (Active Directory, the various products that run on Windows Server), but also left the door open for plenty of non-Microsoft elements.

Amazon's been content for now to deliver its cloud mostly as a set of utilities, where the business case for each component was brought to the table by the customer. AWS has smartened up of late and offered more focused products -- such as its Kinesis real-time data processing service -- but it's long tried to make its services as generic as possible. That may be an endangered approach, as businesses ask for -- and receive -- more focused and specific products from cloud vendors in general.

Lock-in. One surefire way to avoid losing customers is to give them nowhere else to go. Microsoft has long known this, which is why it built its cloud to give existing Windows Server customers somewhere to go other than Linux. Microsoft believes it has plenty of business customers who want to remain Windows and Windows Server shops in the long run; so far it seems to be right.

With Amazon and Google (and to a degree Microsoft), the lock-ins they've developed are mainly around the way the different parts of their cloud products interact internally. Switching from a mix of, say, EC2 and S3 to equivalent parts on Google's side isn't impossible, but it won't come easy.

Still, Amazon can't expect those barriers to automatically remain in place -- and given the degrees of automation and inherent programmability sweeping through the cloud world as must-have features, the market might soon reach a point where it's illogical to expect any degree of automatic lock-in at all.

New kinds of competition. The big cloud outfits blazed the way by offering services that covered the broadest possible use cases. But the next step may see cloud outfits that offer far more granular, targeted products with more flexible pricing and faster instantiation. For instance, Digital Ocean is growing by leaps and bounds, with its $5-a-month "droplet" virtual machines that still beat Amazon's least expensive AWS offering. The range of products isn't as broad as Amazon's, but it doesn't have to be.

If there's enough differentiation along the way, we might even get to a point where price matching or price beating isn't a driving competitive factor -- not because it isn't easy to do (after all, everyone else is doing it), but because it isn't seen as the major measure of value. Amazon's VP of marketing, sales, and product management, Adam Selipsky, hinted at this in a discussion with the Register about the merits of price matching against Google and Microsoft. To Selipsky, it's about differentiation of features and services -- some of which are worth paying more for than others, presumably.

Another recently minted -- albeit major -- cloud player staying out of the price-cutting spiral is IBM, by way of SoftLayer. In a Re/code article IBM dismissed being "associated with being the low-cost leader in the cloud," and said it wants instead to seek higher revenues -- if only from a smaller customer base.

While we can expect prices to continue dropping -- whether or not in honor of Google's conceit that cloud prices should follow Moore's Law -- the real competition for cloud customers is going to become far broader, far more competitive, and far more difficult for any one outfit to completely dominate. But boy, are they ever going to try.

This article, "After cloud price cuts from Amazon, Google, and Microsoft, what's next?," was originally published at Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest business technology news, follow on Twitter.

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