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Price Sells Cloud

Stocks in this article: IBM AMZN NFLX RAX GOOG

Updated Monday, Feb. 18 at 3 pm: Adds information about Amazon's premium support services.

NEW YORK ( TheStreet) -- Later today I plan to be part of a cloudchat with IBM (IBM) on the topic of "cloud customer service."

This is an oxymoron. IBM thinks the lack of customer service is restricting the growth of cloud applications. It is mistaken.

What's happening in the market is simpler. Price sells cloud. (AMZN) has been dominating the public cloud market by pushing prices as close to its costs as possible. Other vendors have been forced to follow, and buyers of cloud services have come to see cloud technology as dirt cheap.

But in making its service as cheap as possible, Amazon has been forced to make its cloud "self-service." You buy it online, you figure out how to use it for yourself.

Amazon does offer premium support , which includes telephone support and direct contact with its engineers. Prices are based on monthly minimums or a percentage of your monthly bill, whichever is greater. This starts at $100/month, on services that cost just pennies an hour.

Some of Amazon's biggest customers, such as Netflix (NFLX), are now offering open-source tools to make using Amazon easier, Gigaom writes.

Netflix is doing this because it's happy with Amazon's self-service, but would like the help of other programmers in making it better. Judging by the crowd at its Feb. 6 meet-up on cloud tools, which Gigaom covered, it has a receptive audience.

There's no altruism here. In addition to using the open-source process to make its use of Amazon better, Netflix is using the same process to seek alternatives to Amazon. But it's not finding many -- not near Amazon's price.

Amazon's aggressiveness is creating casualties. Rackspace (RAX), the high-flying cloud host that was the original sponsor of OpenStack, the open source cloud system, fell hard this week as its growth slowed. Amazon's competitors in the public cloud aren't gaining traction because Amazon's prices are just so good.

How good? Start with using Amazon services for 750 hours free. You can't beat free.

The aim of Amazon's pricing, of course, is to push customers toward reserving the service, paying for it in advance. The highest price I could find on its reserved price list, eight extra-large high-storage systems, cost under $17,000 to reserve for up to three years, and just 76 cents/hour to use. Seventy-six cents an hour.

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