In recent years, cloud computing providers have been slashing prices — a phenomenon we’ve called the “race to zero.”
Amazon Web Services, for example, has cut its price 44 times in the last six years, while Microsoft and Google have both decreased prices multiple times to keep up with AWS.
On Wednesday, RBC Capital’s Mark Mahaney published a chart that perfectly captures this trend.
According to the chart below, the average monthly cost per gigabyte of RAM, for a set of various workloads, has dropped across the board over the past year.
This is just one way to measure cloud pricing — cloud companies charge in different ways for different services. But it’s a good proxy for how fast prices have been dropping for real-world use scenarios.
Based on this metric, AWS dropped prices 8% from Oct. 2013 to Dec. 2014, while both Google and Microsoft cut prices 6% and 5%, respectively, in the same period. Other companies who charge more, like Rackspace and AT&T, dropped prices even more significantly.
The change is less profound when you include customer support costs. But it’s worth noting how high-touch support adds only about 40% to AWS prices, versus about 70% for Microsoft and $US110% for Google. (Again, based on this one metric.)
Mahaney also noted that AWS’s revenue growth slowed dramatically toward the end of last year — annualized growth was around 60% in 2013, versus less than 40% now — but he thinks growth will stabilise in 2015 as the price wars slow down. (Amazon doesn’t break out AWS separately, but RBC believes AWS is a “very substantial component” of the Other segment in North America.)
RBC rates Amazon as “outperform” and has a price target of $US420 on the stock.
Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.