Google Cloud Platform: Priced for the Enterprise?

Google, like other leading cloud vendors, has priced itself competitively with an eye toward market share. But is the search giant set to win enterprise customers?

Google has tried for years to distinguish itself with the way it prices its Cloud Platform services, as it scratches and claws to compete in a market dominated by others.

“Google has had a very strong pricing philosophy,” says Dave Bartoletti, a Forrester Research analyst.

But despite its comparatively low prices and friendly customer terms, Google is far from the leadership position among providers of cloud infrastructure and platform services.

That honor belongs to Amazon’s AWS, which gobbled up 31 percent of the market’s revenue in 2015, followed by a distant Microsoft with 9 percent, according to Synergy Research Group. IBM ranked third (7 percent), and Google, with 4 percent, finished tied in fourth place with

Cloud computing pricing Google-style

The Google approach to pricing is built upon these pillars: maintain prices low, keep them closely tied to actual, granular usage and offer flexible, transparent and open terms to customers.

Or in Google’s own words, its pricing and licensing philosophy saves customers from “complex financial planning and helps you avoid lock-in.” The company touts a number of its processes. For example, it offers sub-hour billing so Compute Engine customers are charged by the minute of usage, with a minimum of 10 minutes, and not, say, in hourly chunks.

Then there’s pre-calculated “sustained use” discounts for virtual machines that are in use more than 25 percent in a given month, and the discounts rise for VMs used an entire month.

Just this past November, Google introduced Custom Machine Types to offer even more flexibility for configuring VMs and help customers avoid buying excess capacity.

“When choosing a virtual machine type, major cloud providers force you to overbuy; since VMs usually come in powers of two, you need to buy 8 vCPUs, even when you only need 6,”  wrote Sami Iqram, Product Manager, Google Cloud Platform, in a blog post. “With Custom Machine Types, you can create virtual machines with the shapes -- i.e. vCPU and memory -- that are right for your workloads.”

Google’s philosophy resonates with StarMaker Interactive

This approach to pricing has worked well for StarMaker Interactive, a Google cloud customer since its founding in 2010. It currently uses App Engine, Cloud Storage and Managed VMs.

“I like to pay for only what I use, with automatic scaling up and down,” says Christian F. Howes, VP of Engineering at StarMaker Interactive.

His company sees no need for long-term agreements. “We get some bulk discounts for sustained usage, which is straightforward and great for us,” he says.

StarMaker hasn’t used other IaaS or PaaS services recently. It has tried other storage offerings, but sticks with Google’s due to ease of integration.

“The overall cost of ownership of Google App Engine is much better than other solutions we have evaluated and we’re quite happy with the platform,” Howes says.

But is this approach to pricing effective with large companies?

All of this may sound like a winning strategy, especially when catering to SMBs like StarMaker, small corporate teams and projects, startups and individual developers.

But adhering exclusively to this approach may be harming Google’s ability to land and retain large enterprise customers, according to Bartoletti. Those companies’ IT purchasing departments operate in quarterly and annual budgeting cycles, so they prefer to strike more structured, upfront deals with their IT providers, which they’re able to do with other cloud computing providers such as Amazon’s AWS and Microsoft.

“Google stands out with its strict pricing philosophy of not locking in customers and not making them pre-purchase infrastructure in advance,” he says. “But Google may want to rethink that for large enterprises as they get more of those customers.”

Larry Carvalho, an IDC analyst, notes that differentiation by price is increasingly difficult in this market. Google, Amazon and Microsoft have spent the past two years cutting prices aggressively, on a heated race to the bottom.

In a research note published in mid-January, RBC Capital Markets analyst Jonathan Atkin concluded that the rate of price cuts is slowing down and that they don’t seem to be affecting significantly how the market is balanced, according to CloudPro Magazine.

That hasn’t stopped Google from continuing to beat the pricing drum. As recently as January, Google fired off a blog post after Amazon’s AWS announced price cuts. In the post, Miles Ward, Global Head of Solutions for Google Cloud Platform, declared that “we’re anywhere from 15-41 percent less expensive than AWS for compute resources, after their reduction.”

But Carvalho notes that not only are prices very low in general, but large enterprises save substantial amounts just by virtue of shifting on premises workloads to the cloud. “Cost isn’t much of an issue for enterprises,” Carvalho says.

Rather, companies in that segment of the market, which is expected to grow robustly, are more interested in other things, such as ease of use, clear billing, usage transparency, management tools, cost forecasting, security features, guidance and setup assistance, he says.

Google and its competitors have addressed these areas to varying degrees, but cloud services providers in general have an opportunity to do more there, according to Carvalho.

And it’s not just large enterprises that are looking for this. Asked how Google could increase the convenience of its cloud services, StarMaker’s Howes says: “In pricing, I would like simpler ways to calculate anticipated usage and monitor daily and monthly usage to understand and anticipate costs.”

It also doesn’t help that Google historically hasn’t had established, long-standing relationships with many enterprise IT departments, contrary to, for example, Microsoft whose track record dealing with -- and understanding -- CIOs and VPs of IT stretches back decades.

“Google is behind because they don’t know how to deal with the enterprise,” Carvalho says. “It doesn’t have as much experience selling to that market as Microsoft, IBM and others.

To be sure, the Google Cloud Platform business isn’t stuck in the mud. It grew its revenue year-on-year 108 percent in 2015’s Q4, according to Synergy Research Group. Its rivals also posted robust revenue growth numbers, in particular Microsoft (124 percent), Amazon (63 percent) and IBM (57 percent).

Google says it’s committed to this market

In an interview with Datamation, Google’s Ward challenges the idea that large enterprises are put off by Google’s pay-as-you-go pricing philosophy.

He and his team interact constantly with large enterprises, whether they are existing or prospective customers, and he claims that once they understand Google’s approach, they overwhelmingly prefer it over the conventional option of paying upfront and entering into long-term commitment in exchange for discounts.

When asked whether Google would consider adding the upfront payment option for customers that may prefer it, Ward says: “We wouldn’t abuse our customers that way. It’s a way to take more money from them.”

Ward says to expect “a lot of pretty surprising announcements,” including enthusiastic endorsements and testimonials from large enterprises, at GCP Next 16, this year’s Google Cloud Platform user conference, slated for March 23 and 24 in San Francisco.

Recent executive comments and corporate moves indicate that Google is eager to improve its position in this lucrative, fast-growing market. According to Synergy Research Group, whose market definition includes IaaS, PaaS, private and hybrid cloud offerings, customers spent north of $23 billion in 2015, up 52 percent from 2014.

Google CEO Sundar Pichai was recently quoted in Fortune Magazine singing the praises of this market, saying that “public cloud services are a natural place for us” and that the Google Cloud Platform is at a point where it “is ready to be used at scale.”

And in November, Google hired the co-founder and former CEO of VMware Diane Greene to lead a new team that combines all of its cloud businesses -- Cloud Platform, Google for Work and Google Apps. The move was seen as a serious attempt by Google to increase its cred in the enterprise IT world.

But it’s clear Google’s ambitions are to increase the size of its market pie, so stay tuned for what Pichai and Co. may have in store for the Google Cloud Platform in 2016.

Photo courtesy of Shutterstock.

Tags: cloud computing, AWS, Azure, Google Cloud

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