This Is Why We Aren't Seeing More Cloud Startups

By Kayla Matthews, Contributing Writer  |  May 03, 2017

Cloud computing and storage services used to be extremely expensive, and it was a space that didn’t see a lot of innovation or change. But all of that is changing now, and Amazon is largely to blame — not that it’s a bad thing.

Amazon Web Services (News - Alert), or AWS, is the current leader in the space, and why wouldn’t it be? It offers exceptional pricing opportunities, great service and incredible uptime for its platform. One could even say Amazon is a little too good, as competing with it directly is difficult, to say the least.

In just the past six years, Amazon has slashed prices for its Web Services platform a total of 44 times. What this tells us is that Amazon is clearly going for volume here by selling as much as possible at low prices. And we all know how tough it is to keep up with such a model — especially when you’re able to keep the quality of your products high, no matter how low you go.

Just to keep up, Microsoft (News - Alert) and Google have made a few price cuts to their comparable services in recent years. It’s not like they had much choice. But it’s not just because Amazon is trying to stay competitive, although that’s a large part of it. It’s also because the hardware is getting cheaper by the day.

Amazon also got there first.

Naturally, Amazon is hoping that at such a low cost and low barrier of entry, enterprises and businesses will be more likely to add more subscriptions to their portfolio. It’s the same approach big-box stores like Walmart take. Lower the prices enough so people just keep adding more and more into their carts, and you can make the big bucks.

And since both Microsoft and Google (News - Alert) are willing to keep up, this creates an environment that’s aggressive and maybe even “punitive,” as Gartner analyst Raj Bala describes it. It has created what many refer to as the “cloud wars,” where these cloud computing companies and service providers are vying for business through huge price cuts.

How Does All the Competition Affect the Market?

It’s a benefit for consumers initially, yes, but it also means we won’t see as many cloud startups. It’s entirely possible that in the future, startups will dry up completely because they’re unable to keep up.

The biggest issue, obviously, is the plummeting prices. That’s not to say it’s impossible to incur heavy cloud computing costs with one of the major providers. They still use a “pay as you go” model that can get you into serious trouble if you don’t consider all the fees and charges.

But it’s difficult — and growing more so every day — for startups and new cloud-based companies to enter the market. Even companies like Rackspace Hosting and other familiar industry faces are having difficulty with growth.

The problems aren’t confined to the hosting and networking side of the market, either — it’s the entire cloud space. For instance, Google Cloud storage has yet to break the 1 percent mark in media processing, and this is despite competitive pricing opportunities.

It’s no wonder juvenile companies and startups are few and far between. Many shy away from the highly-competitive space, lest they risk being pushed out by one of the major providers. So, what’s the solution, if there even is one?

Sadly, there doesn’t seem to be one — at least, not yet. The major players in the space pretty much always will be the major players, barring a serious error or shift in operations, which is unlikely. We’ll just have to wait and see. For now, just know that’s why cloud startups are slowing, more so than you may have seen in the past. 

Edited by Alicia Young