The 10x difference in pricing between the least and most expensive cloud computing offers listed on the Cloud Price Calculator home page reflects an industry in pricing chaos. The long list of issues associated with sessions at the various cloud conferences from security to picking a hypervisor remain moot until the industry becomes more price competitive with on premise computing options. The ability to leave EC2 instance prices unchanged for years at a time may seem like good news for Amazon, but high costs keep the mass migration of computing to the cloud on hold.
A price war forces discipline among the companies contributing to the cloud computing value chain at the same time lower prices increase end user demand. Intel does need to chase chip cost reductions to the extent the cloud computing companies don’t compete on price. AMD can’t pressure Intel’s 90% data center share if there isn’t sensitivity to price. The companies delivering the software for the virtualization layer can set prices arbitrarily high in the absence of demand. The absence of price competition does not represent good news for anyone, it means there is not enough deployment activity for anyone to care.
VMWare’s nearly 100% share of server virtualization represents a cautionary tale. The VMWare monoculture leaves server virtualization an expensive proposition available only to deep pocket Fortune 500 IT departments. There exists very little upside in the virtualization ecosystem for anyone except VMWare. This weighs against innovation and presently makes VMWare vulnerable to cloud based (multi-server virtualization) developments. Large enterprises with the support of Intel announced the Open Data Center Alliance (opendatacenteralliance.org) in order to avoid repeating mistakes that produced the captive customer leverage achieved by VMWare.
All prosperous infotech sectors reflect a healthy degree of price competition. Linux takes the edge off Microsoft’s hedgemony. AMD takes the edge off Intel’s market power. SugarCRM keeps Salesforce.com from getting too comfortable. The growth of Amazon EC2 in spite of a failure to provide customers price performance improvements represents bad news for the mid to long term prospects of cloud computing. Microsoft’s Azure and Google’s AppEngine represent some competition, but neither address Amazon EC2 directly. The cloud computing industry will never convert theory to practice or hype to reality without a basis for comparing offers from different companies and price competition.