Price Sells Cloud

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.

Not everything in the price list is transparent. What's an extra-large? What's the difference between a high storage, high input-output, and high CPU instance? Who cares? Amazon keeps cutting prices, forcing even Google ( GOOG) to respond, InformationWeek reports, and the price war shows no signs of abating.

Sorry but there's no hand-holding, no "customer service" at those prices. But the customers don't care.

There's something else happening as a result of these low prices. The customer mix is changing, from computer people who care about issues including customer service, to marketing people who are building a new ad-supported mobile web with lots of TV on it, CIO Magazine writes.

So what IBM considers a bug is, to the market, a feature. Self-service and open source mean cloud prices are even lower than they might otherwise be, while demand for public cloud is exploding. Who cares if cloud isn't being used for business process management? It's creating new business.

Cloud isn't waiting for computer people to adapt to it. All the talk about "private cloud" -- cloud-based systems hosted at a company premises -- or "hybrid cloud" -- moving seamlessly between these private clouds and public clouds such as Amazon's -- is just so much noise to the people driving the market.

Cloud is like many other computing revolutions I've covered in my career, from the PC itself to the Internet to mobile. The experts aren't driving the train, and it may take them years to catch up with what's happening in the market right now.

At the time of publication the author had positions in IBM and GOOG.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.