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Fascinating topic - yes AWS pricing falls slower than Moore's Law, this reflects the degree of market power shared by few large public cloud providers given the

by jimmrf 12y ago

Fascinating topic - yes AWS pricing falls slower than Moore's Law, this reflects the degree of market power shared by few large public cloud providers given the scale needed to compete at the top level. The profit maximizing strategy for each is enjoy rising margins while costs fall and reset prices to a lower level as a pack once costs have fallen so low that it is most profitable to lower the price to serve a larger market (google 'oligopoly' or 'kinked demand' for further clarity). There was actually a slide addressing this very question used in a Urs Hölzle keynote at Google Cloud Live 3/25/14. It was titled 'but prices are not falling fast enough' and showed 2006-2014 cloud prices falling 6-8% vs. 20-30% improvement in hardware pricing. I included a screenshot in my deep-ish dive I'm developing on the economics of cloud market pricing http://www.stackalpha.com/blog/2015/2/25/cloud-price-wars-the-joke-is-on-us http://www.stackalpha.com/blog/2015/2/25/cloud-price-wars-th...

ceejayoz 12y ago
> It was titled 'but prices are not falling fast enough' and showed 2006-2014 cloud prices falling 6-8% vs. 20-30% improvement in hardware pricing. Did power, land, maintenance, staffing, R&D, etc. costs fall 20-30% during that time period too?
- jimmrf 12y ago
  Good point: Power - per kW cost would not have fallen materially, but efficiency per instance would have improved Land - flat fixed cost would not have fallen, but sunk cost on existing facilities no marginal cost only relevant to geographic expansion. Also, AWS would own so would be working from increasingly small amortized base Maintenance - might improve marginally with scale and experience as improve leverage on physical infrastructure Staffing - would expect headcount per instance to fall in the period and automation to simplify some roles, offset by rising wage R&D - You are 100% correct this would most definitely be increasing in the period and illuminates an interesting nuance. I am probably perverse in thinking of the underlying 'core' service (compute, storage, etc) margins as funding R&D to compete by creating the suite of services on top
- nostrademons 12y ago
  For Google's purposes, this is immaterial. They already have core competencies in power, land, maintenance, staffing, R&D, etc that are sunk costs. Their point is that Amazon is enjoying 80-90% profit margins, and so this is a lucrative business for them to enter. Moreover, they're pointing out that they can offer you large cost savings sustainably to entice you to switch. For a small business's perspective, the cost of overhead is absolutely material - but then, most of them probably wouldn't switch to bare metal anyway, but rather Dockerize their app and shop it around to whoever the lowest-cost IaaS provider is.
  - ceejayoz 12y ago
    > They already have core competencies in power, land, maintenance, staffing, R&D, etc that are sunk costs. Their cloud offerings expanding mean more power use, more land use, more maintenance, more staffing, more R&D. It's not all sunk cost.
    - nostrademons 12y ago
      But the point of the graph is that these together << the price they can charge for the service. That's what profit is.
      - ceejayoz 12y ago
        Of course they're making money off it. Claiming that a 20-30% reduction in raw hardware costs means you should see the entire service's cost go down 20-30% ignores those non-hardware costs, though.

by jimmrf 12y ago

ceejayoz 12y ago

> It was titled 'but prices are not falling fast enough' and showed 2006-2014 cloud prices falling 6-8% vs. 20-30% improvement in hardware pricing. Did power, land, maintenance, staffing, R&D, etc. costs fall 20-30% during that time period too?

jimmrf 12y ago
Good point: Power - per kW cost would not have fallen materially, but efficiency per instance would have improved Land - flat fixed cost would not have fallen, but sunk cost on existing facilities no marginal cost only relevant to geographic expansion. Also, AWS would own so would be working from increasingly small amortized base Maintenance - might improve marginally with scale and experience as improve leverage on physical infrastructure Staffing - would expect headcount per instance to fall in the period and automation to simplify some roles, offset by rising wage R&D - You are 100% correct this would most definitely be increasing in the period and illuminates an interesting nuance. I am probably perverse in thinking of the underlying 'core' service (compute, storage, etc) margins as funding R&D to compete by creating the suite of services on top
nostrademons 12y ago
For Google's purposes, this is immaterial. They already have core competencies in power, land, maintenance, staffing, R&D, etc that are sunk costs. Their point is that Amazon is enjoying 80-90% profit margins, and so this is a lucrative business for them to enter. Moreover, they're pointing out that they can offer you large cost savings sustainably to entice you to switch. For a small business's perspective, the cost of overhead is absolutely material - but then, most of them probably wouldn't switch to bare metal anyway, but rather Dockerize their app and shop it around to whoever the lowest-cost IaaS provider is.
- ceejayoz 12y ago
  > They already have core competencies in power, land, maintenance, staffing, R&D, etc that are sunk costs. Their cloud offerings expanding mean more power use, more land use, more maintenance, more staffing, more R&D. It's not all sunk cost.
  - nostrademons 12y ago
    But the point of the graph is that these together << the price they can charge for the service. That's what profit is.
    - ceejayoz 12y ago
      Of course they're making money off it. Claiming that a 20-30% reduction in raw hardware costs means you should see the entire service's cost go down 20-30% ignores those non-hardware costs, though.