There is not one cloud market, but many. Most attention right now is on cloud software, but there are also cloud hardware, cloud data centers, private cloud, cloud applications, and public clouds, all growing quite nicely.
What experts like Josh McKenty of Piston Cloud have told me is that the market is evolving, from private cloud experimentation to private cloud construction, toward corporate use of public cloud infrastructure as problems of security and service levels are dealt with.
Public clouds, in short, are the final destination, and the winner in that market will have redundancy, resilience and the lowest possible costs, in order to deliver the lowest possible price.
This seems to be the belief of Amazon.com (NASDAQ:AMZN), whose astronomical PE (134 at last check) is only sustainable if you assume it can dominate this last cloud market.
The company's latest price cuts, announced on the company's blog, seem aimed at doing just that. The key cut is to "reserved instances," a sort of pre-paid reservation that are bought before they're needed and provide a discount on the final price. These were cut 37%, in a bid to maintain market share and to lock in customers down the road. Instances bought on demand, by contrast, were only cut in price by 10%.
This was the 19th price cut for Amazon Web Services in six years, leading some to see a Moore's Law effect at work. But know that Moore's Law, which sees component costs fall steadily, has a corollary I call Moore's Second Law, holding that capital requirements increase with the market's scale. What Amazon aims to do, in time, is put a Moore's Second squeeze on smaller competitors like Rackspace (NYSE:RAX).
In the near term, however, it's clear that as Amazon's own costs fall, they are passing the savings on to customers rather than banking them as profit. Boosters of private cloud believe they will benefit more than public cloud operations like Amazon. If you disagree, as I do, and agree more with McKenty, then Amazon rates a buy, even at these levels.
Amazon may not be the only cloud winner, however. Google (NASDAQ:GOOG) has cut its own storage prices 15%, dropping its standard pricing below the level of Microsoft's (NASDAQ:MSFT) Azure cloud or even Amazon. The company's naming of five new storage partners indicates it is getting serious about the enterprise cloud space, according to analysts.
Again, what I believe matters most in the public cloud market will be scale, redundancy, resiliency, and cost. Public cloud, in time, will be a massive market, with both Amazon and Google positioned to do very well in it. They have a head start in this space, they have the lead, they have the customers, and both are being very aggressive in pressing these advantages.