And the Cloud Big Bazaar has arrived!

Pratima H

INDIA: SHE fainted with joy. That was after she did seven somersaults, which was after she flipped, went epileptic and squealed like a five-month old.

Yes, she works for a crème de la crème MNC.

Yes, she flies Business Class.

Yes, she wears nothing but Jimmy Choo.

No, she has not been diagnosed with any silly medical condition.

She had just seen a hard-to-swallow discount on mangoes in a holiday aisle at a supermarket.

Come to think of it, it's the weird, esoteric, foggy-to-the-windshield world of consumer behavior again.

It does not matter if a consumer is ready to pay zillions for a Lana Marks or Chanel, you may find the same person haggling over a bunch of coriander the very next hour.

Is it an India thing? A female thing? A plain-good old law of elasticity thing?
Remember how those professors made us yawn to death when they went on and on about price, demand and supply curves?

The real lesson hit many of us the hard way on the street, out of the claustrophobic confines of the class when, standing between a spike in a cola bottle price and some sliver of almost-over pocket money, we got a grip on how the rate of response of quantity demanded fluctuates due to a price change. A.k. a Price Elasticity of Demand.

How boys still managed to squeeze out an extra penny for a not-so-affordable cigarette butt, and how girls were ready to fast for that perfectly-mauve nail polish, irrespective of its price tag! That's when the concept of inelasticity of necessities (where a shift in price does not drastically affect consumer demand) hit at the right spot. Or was it something about Veblen goods? Who remembers!

Last week had brought back those eerie memories to many, on either side of the industry - both buyers and sellers. What seemed like a scene out of a Bollywood movie where two rivals are engaged in a blood-fight over who bids the most for a maa ka plot; is actually a spectacle of contrast that has emerged in some high-key conferences and analyst calls in the last few days.

It's not a skirmish of who bids well enough the last laugh, but a battle of a ‘who can offer the cheapest' in the big Cloud war.

Whether it is the legendary and well-entrenched big boy Amazon or the fast-enough-to-chase disruptor Google or the ‘about to speak soon and surprise us' Microsoft; every public cloud player worth his salt (or price lollypop) is lacerating prices at a maddening pace.

The question forks here - it is not only about how much customers would salivate over these spiraling string of discounts, but also about that thing called cross-elasticity.

Cut, Slice, Chop

Did it start with Amazon or Google. Honestly, we have lost count. But as soon as a massive price cut was announced at the AWS Summit in San Francisco, the news was readily juxtaposed with Google's Google Cloud Platform price change.

The responding slash happened and a backlash-sounding discount followed, to be continued almost incessantly as price cuts between AWS and Google since that day.

The discounts traversed not only tier pricing and basic services but per GB storage slits, cuts on M3 instance types, C3 , RDS, ElasticCache , Elastic MapReduce, BigQuery, Cloud Platform services app engine offerings for developers, reserved and sustained use instances, virtual servers, cloud storage, spot and front-end instances etc.

Is it because of economies of scale thanks to the shrinking gap between hardware costs and vendor cost of cloud and some semblance of Moore's law?

Or due to some advantages of a long curve over utilities, labour and operational skills costs? Or because of cascading effects of those deep pockets and familiar time, infrastructure and market efficiency models that Google/Microsoft has been illustrious (and sometimes notorious) for?

Or is it an attempt to drive utilization rates in the market which is quintessential to a successful public cloud model?

How do you spell out S.A.L.E?

What really lies at the heart of these headlines and questions is that how much of a cause of celebration can this phase be for CIOs, specially the ones who are perceived to be fence-sitters so far? Is price really the right nudge as vendors may have surmised?

The increasingly low price of cloud computing can make using public cloud offerings more attractive. Yet, mere low price does not obviate other elements necessary for an application to be successful in a cloud environment, as an expert synonymous with Cloud industry, Bernard Golden cautions.

Customer definitely stand to gain with the price cuts from the public cloud vendors such as AWS, Google and Microsoft, and they can expect more such announcements in future.

It's not just about capturing the market share, for public cloud vendors it's equally important to pass on the benefits of economies of scale to customers, Forrester Research Senior Analyst Sudhanshu Bhandari observes.

"Customers who have moved most of their infrastructure in cloud have realized their operation cost increased more rapidly year on year vs. on premise infrastructure." So now with the help of these price drops CIO can flatten the operational cost curve, he recommends.

Does that mean that CIO should wait for more price drops, and sideline a strong business case for cloud? Bhandari warns that adoption of cloud should not be driven by price points alone. There should be a strong business case or a problem at hand which will likely get addressed by cloud adoption.

"For example for print news media companies, the advertising revenues have dropped in past few years, and there is need for them to develop a scalable paid for content platform which customers are ready to pay for. Selecting cloud to quickly build and deliver the digital apps would make a perfect use case."

Golden also echoes the fine print. "Successful support of application functionality requirements; appropriate security and compliance alignment, and application availability and scale as needed. However, the low costs of public cloud environments make them an attractive option for application deployment as well as a more economic alternative compared to a private cloud implementation."

It is better then that companies should not wait for further price drops, they should properly identify what are the business problems they are trying to fulfill with cloud, what are the regulations for data sovereignty and match these requirements with the capabilities of cloud vendors to make the purchase decisions.

Cost can't be only deciding factor, stresses Shailendra Singh, DGM Data Centre Infrastructure & BCP-DR, Sahara India. So CIOs should be cognizant of a lot of challenges and solid ground work needs before deciding on public cloud. Think of risk based analysis, uptime commitments etc here, he aptly reminds.

Bhandari suggests that while selecting the cloud vendors - customers should ask about SLA and how the future price drops will be passed on to the existing customers. Though in most of the cases existing customer will get benefited by the price drops, however in some of the cases such as reserved instances price drop will not be applicable to existing customers.

"It is therefore important to evaluate what vendor is offering and how does it match with your SLA requirements."

It's quite likely that the price tag may obscure other packaging copy on the bottle and this is where caveat emptor floats back.

Customers should also compare spectrum of services which are being currently being offered, cloud-migration tool maturity, and capabilities to provide enterprise support. It will be more cost effective to use fewer hybrid environments - so that your tech management team do not have to invest resources into multiple tools, integrating these environments and coordinating between multiple vendors to troubleshoot issues.

Bhandari opines that AWS is the undisputed leader in the public cloud (IaaS) and some of the reports suggest that its competitor can provide cheaper cloud offerings.

Incidentally, the word ‘cheaper' throws us back into some more chapters of Economics. When price of one good rises, its quantity demanded will go up, down or stay stoic depending on its elasticity quotient. That number and direction of graph, is something that we certainly figure out as market manifests itself to public cloud price slide.

But meanwhile it's tempting to wonder about how the price-dive of this good affects the demand for an alternative good? Are we ready to see some entertaining Tango from the space of Private Cloud? Would they playout substitutes or complements? Or will we run into a rare case of Giffen goods perhaps?

That's tomorrow's rant.

Yes, she is up and screaming.