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Humans once did all their farming and building themselves, much like startups used to build out their own infrastructure. This was a necessary but not particularly efficient system. For consumers, the recent price war over storage has been a pleasant surprise. For Internet companies, though, it’s been a cause for an extended wave of high fives.
As farmers and blacksmiths emerged to generate more labor through specialization, so have specialized cloud computing and services become the backbone that fuels startups and Fortune 500 companies alike. Which is why last week’s announcements of price cuts to the cloud services of Google and Amazon — two of the most widely used cloud services — resonated across the Internet.
Amazon is best known as an e-commerce giant that also dabbles in media. Among web businesses it serves a very different role. Amazon Web Services is the industrial farmer of the Internet, a cloud-based service that takes care of the arduous — but necessary — tasks that once cost startups large chunks of their capital.
Demand for this type of service has produced a market with no shortage of options. Google and Microsoft offer similar services, while Dropbox and Box lead a raft of smaller companies. Prices for consumers are low, with most services offering a certain amount of free storage to individuals users. While still cheaper than building its own infrastructure, cloud services do get expensive.
Two important factors precipitated the price cut: growing competition between established players and plenty of new entrants into the market, along with improvements in technology that lowered the operating cost for service providers. Falling prices are great for consumers and companies, but savings can be fleeting. Growing companies can rapidly increase reliance on services, leaving them victims of their own success.
Falling prices call into question whether the quality of the services will remain at the same level. A Christmas Eve problem with AWS caused an outage of Netflix and other customers. While startups may be without other options for services, larger companies that are built on a single service rely heavily on the cloud provider.
For now, Internet companies will enjoy a little more cash in their pockets. But if cloud prices continue to drop, the market could risk underpricing itself and minimizing necessary competition.
Source: Associated Press