) recently announced its decision to slash prices of dedicated
instances on its cloud-computing platform.
Dedicated Instances are EC2 instances that run on
single-tenant hardware dedicated to a single customer account.
They are well suited for running workloads that have to be
isolated at the hardware-level from instances belonging to other
customers due to corporate policies or industry regulations.
The decision to slash prices by upto 80% for some of its
online data services will help Amazon to maintain its dominance
in the cloud computing field. The significant price cut follows a
chain of reductions that Amazon Web Services (AWS) has introduced
over the years. Management stated that the new prices will be
effective from Jul 1 and will apply to all supported instance
types and AWS regions.
We view Amazon's decision to cut prices as an aggressive move,
designed to increase its share in the cloud computing market.
Last year, AWS generated about $1.8 billion in revenues and is
expected to grow stronger given the increased adoption of its
This year, AWS price cuts have fuelled a price war, with
) also joining in. In April, Microsoft slashed prices for its
Windows Azure cloud services by 21% to 33% for some of its online
Cloud storage came into prominence in 2009, with Nirvanix and
Amazon's Simple Storage Service (S3) being two of the major
pioneers. Since then, Amazon has continued to dominate the space,
with other players like
) and Microsoft offering their own solutions.
We believe the cut in Amazon's AWS dedicated EC2 offerings
indicates difficult times ahead for other companies in the space.
Following the price cut, shares of Rackspace were down almost 8%
Earlier, companies incurred significant costs to build their
own infrastructure for data storage. They had to make a
substantial payment upfront, after which they would invest
further to purchase additional storage space, anticipating
growing backup demand. This resulted in under-utilized capacity
and unnecessary expenses. With Amazon's cloud-based storage
services, companies now do not need to waste time and money on
managing their own data centers.
IDC predicts that the cloud market will jump 130%, reaching
$43.0 billion in 2016. Further, Gartner predicts that around
$677.0 billion would be spent on cloud services within the
2013-2016 timeframe. Microsoft, with its solid portfolio should
be able to tap this opportunity.
The company is expanding AWS internationally and investing
heavily in technology infrastructure to support rapid growth. We
remain extremely positive about AWS's growth prospects and expect
Amazon to remain one of the leading players in the fast-growing
Amazon shares currently retain a Zacks Rank #3 (Hold).
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