Serious question: Who will win the ‘race to zero’ in the cloud?

As the public-cloud market enters its adolescence, the pervasive concept of a “race to zero” has created an impression that only the established leviathans can compete in the space. On their path to dominance the likes of Amazon Web Services (AWS), Google Compute Engine, and Microsoft Azure gobble up nascent software-as-a-service startups and lesser infrastructure-as-a-service and platform-as-a-service providers as they aggressively drive down costs and make it seem unattractive for customers to not be in the cloud. Google’s latest round of price cuts on an array of services and applications have reaffirmed this popularly held belief.

Yet, now that last week’s re:Invent conference has left AWS fanboys and girls satiated by new features, I couldn’t help but notice the conspicuous absence of the familiar price reduction announcements that have consistently generated juicy headlines. I’m not the only one.

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What does this mean for the race to zero? Is the cloud price war effectively over with only Google and Microsoft left playing a game of “how-low-can-you-go” chicken?

To help answer this question, we need to unpack the kinds of features and services cloud providers typically cut costs on. But digging into the meat of the cloud price war quickly devolves into a string of one-ups and me toos. At the end of March, for example, Microsoft announced a wave of price drops to counter AWS’ own reductions. This round included “basic” machines without load balancing or auto-scaling functionality and blob storage in some geographies.

Google made its own noise with similar announcements around the same time. These annual (in some cases more frequent) price drops serve as PR distractions from what’s actually happening in the cloud industry. Users are becoming more sophisticated and the global cloud market is developing around what cloud providers do well from a functional perspective, rather than how low the cost of storage and compute is.

Users know that, roughly speaking, costs for having computing and storage in the cloud don’t vary dramatically from one provider to the next. They are instead choosing clouds that fit their individual needs or workloads. The cloud market is becoming a lot like buying a car. Some people want an SUV, some want a sports car, and others need a minivan. Of course, cost matters in this decision, but ultimately car buyers are looking for vehicles that fit their needs and lifestyles.

The cloud market is quickly becoming no different.

In this context, the “winner” of the price war is largely irrelevant. As the cloud matures, the real victors will be companies that can successfully identify and capture the right use cases for the most people.

With functionality becoming the new cloud battleground, there is more than enough room for other providers to move in and attract customers with different features and new ways of addressing common business challenges. Geographic location and privacy have emerged as obvious markers for users not fully served by an American-centric market. Similarly, proximity and latency, as well as network performance, are critical decision parameters for streaming services and gaming companies, especially as most providers charge users for bandwidth transfers.

As more business critical services are virtualized, the notion of what cloud computing is is changing fast. Price as the determining factor is lessening in importance as businesses look for other differentiators.

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Sure, cheaper resources matter, but you wouldn’t go out and buy a hatchback instead of a convertible just because it costs less.

Alex Guy is product marketing manager for telecommunications service provider Interoute’s CloudStore cloud-computing platform. He works with startups and developers to build their IT infrastructure on CloudStore.