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As many investors know by now there is a vicious price war taking place in the cloud.

The biggest providers of public cloud services, led by market leader Amazon.com (NASDAQ:AMZN), have been pushing prices down relentlessly. Amazon is sacrificing profits for long-term market share. It wants to drive everyone else out of the market if it can, and deal with a few competitors like Google (NASDAQ:GOOG) if it must.

I recently wrote about this in relation to another public cloud supplier, Rackspace (NYSE:RAX), and was immediately hammered by one of my favorite bloggers, Robert Scoble, who happens to work at the company. He complains about being "written off," insisting that a combination of solid service and open technology will prevail, given time.

Maybe he's right. I certainly hope he is. But he's looking further down the road than I was when I wrote my piece.

But meanwhile, price sells cloud. And there is evidence the price war isn't just impacting other public cloud providers.

It's also starting to pinch cloud software companies. VMware (NYSE:VMW) CEO recently told a meeting of "partners" (companies that sell or support VMware software) "if Amazon wins, we all lose." (here)

Matt Asay, another industry figure I have great respect for, was flabbergasted. Why was he saying this:

VMware's plea essentially translates to "you have to help us lock customers into our platform," as Benchmark general partner Bill Gurley suggests. It's fine for VMware to say such things in the privacy of its boardroom, but on stage? In front of hundreds of partners and the press? Not wise.

In other words, we're getting killed here.

VMware is especially vulnerable to the public cloud price war, because it's only now pivoting to supply private clouds. It made its money in virtualization, a step toward building clouds, but only a step. It's only now developing a cloud platform, called Cloud Foundry, and re-organizing its cloud software offerings under former VMware head Paul Maritz.

But the problems at VMW will be experienced, to greater or lesser degree, by everyone in the cloud software space. I have an investment in that area myself, Red Hat (NYSE:RHT). I got in last September at almost $55. As of now, I'm losing money, and I expect to lose more before the stock comes good.

Point is, take a look at your own cloud-related investments. If you can't see three years up the road, and a bigger company at that turn of the road, sell now.

Source: Public Cloud Price War Starts Hurting Cloud Software Suppliers