Amazon Prime Pads Rate; Google Cloud Cuts Costs

Amazon PrimeIn separate reports today, retailing powerhouse Amazon.com announced a hike in the annual fee for Amazon prime from $79 to $99 per year, while Google announced discounts on their Google cloud storage products. Amazon improved by 87 cents to $371.51 against a down market. Google gave back $18.24 to close at $1189.06.

Both movements make sense. Amazon Prime members are a captive market. They have become acclimated to the two-day shipping privilege, and many are addicted to Prime’s free Kindle books and online video offerings. The rationale – increased fuel and shipping costs – make the increase, which amounts to $1.67 a month, palatable to the mostly younger Amazon members. That was  a gift to their members, because the company had previously announced an increase to $119.99, which it then backed off from.

Google’s move will cost the company some revenue, which explains why the share price dipped on the news. Google will continue to offer its 15 Gigabytes Google Cloud free of charge, and is cutting prices on their 100 Gigabyte storage plan from $4.99 per month to just $1.99. They are also cutting the price of their 1 Terabyte plan from $49.99 to just $9.99 per month. The company is also adding a 10 Terabyte product at $99.99 per month, 20 Terabytes at $199.99 and 30 Terabytes of storage for $299.99.

The Google price breaks are only for individual users. Companies that are using Google Apps get 30 Terabytes included in their monthly service charges. The pricing strategy makes sense for Google, which is working to capture an increasing percentage of the business computing market by offering cloud based applications as replacements for Microsoft’s aging Office platform.

The Cloud storage space is a gateway product that Google uses to get its nose into Microsoft’s tent. The main selling point for the Cloud-based applications is that they are machine-independent. Users can gain access to their applications – and their data – them from any device, and multiple users can simultaneously access the same documents at the same time.

Amazon Prime’s price increase, though insignificant by most standards, is a test of customer loyalty. The Amazon product is their nose in the tent because their Prime customers have purchased and stored e-books, movies, and images on Amazon’s Cloud space, which comes along invisibly when a customer becomes an Amazon Prime member.

So, what, exactly, is the cloud, anyway. The long answer is that the Cloud is a nonspecific place on the internet where anyone who has access to the internet can store everything from their tax returns to their cherished family pictures on a remote computer system where it is guaranteed to be there forever….as long as they continue to make their monthly payments.

The short answer is that the cloud, like the “internet of things” is really a marketing slogan. Every website in existence has been stored in the “cloud” ever since the internet opened for business, because the cloud is actually the sum total of all of the hard drives that are connected to the internet, including those that belong to individual computer users.

It may come as a shock to notebook owners that the computers sitting on their laps are technically part of the cloud. With the right permissions, anyone with access to the internet can store and retrieve information from anyone else’s computer and, with the right hacking software, they do not even need the permissions.

The commercial cloud consists of vast arrays of hard drives, stored in “computer farms” under hardened security precautions, with uninterruptible power supplies and heavy-duty internet access to remove bottlenecks between the customer and the customer’s data. These systems are equipped with mirror imaging backup software that copies the contents of one drive to other backup drivers to insure the durability of the data.

The best feature of the cloud is that it is impervious to many of the things that can happen to an individual user’s data, including the theft of the device the data is stored on, as well as fire, flood and simple hard drive crashes. The worst feature of the cloud is that users need internet access to reach their data and, sometimes, that is not possible.

In the commercial world, and especially in the current marketing environment, customer retention is paramount. Netflix learned this when they made their historic blunder of splitting their direct service channel from their DVD-by-mail program. It made sense to separate the high-cost DVD business from the much more efficient online service. Customers thought otherwise, and voted with their feet, until Netflix relented.

In both cases, Amazon and Google are using a peripheral service as a loss leader to retain the loyalty of their customer bases. In Amazon’s case, the Amazon Prime customer is costing the company, on average, $2 to $4 for the two-day delivery service as opposed to the usual five-day delivery, so the $1.66 surcharge does not even cover the cost for one delivery per month, but customers like the program, and they really like the free videos they can download from Amazon’s cloud.

In Google’s case, cutting the costs of their cloud services is aimed at cutting the competition – including Cloud storage companies like Microsoft and Dropbox, along with cable providers and cell phone companies that provide mass storage as part of their core services. By capturing that cloud storage business, Google gives itself an opportunity to follow-on products simply by virtue of already having the confidence of the consumers that use the service. Google’s real objective here is to box Microsoft out of the cloud market.

Microsoft is reportedly very annoyed that consumers are starting to drift toward Google Docs, taking business from Microsoft’s Office package, so look for Microsoft to match or even undercut Google’s price point. Google’s cloud price cuts are, therefore, understandable. The question is why Amazon Prime is increasing its rate. And the answer is simple. Amazon does not have any real competition. They can do whatever they want.

By Alan M. Milner

Sources:
PC World
CNN Money
Wall Street Journal

3 Responses to "Amazon Prime Pads Rate; Google Cloud Cuts Costs"

  1. patrick waller   March 15, 2014 at 11:10 am

    I am on Amazon’s trial offer-the original offer was $6 and before my trial offer ended the price was increased to $8. I was going drop hulu + and get Amazon but now I am not sure.

    Reply
    • Alan Milner   March 15, 2014 at 11:42 am

      Not sure that’s a good comparison since Amazon Prime includes discounted shipping for products purchased from Amazon. However, I am going to look into Hulu because I am trying to cut my entertainment costs. Spending way to much for Cable TV.

      Reply
  2. Alan Milner   March 14, 2014 at 9:11 am

    Please leave comments on this story. Especially if you have run across the Facebook paid video. I haven’t actually seen any yet on my Facebook feed. How do you feel about the amount of advertising you have to wade through to find things you’re looking for…or do you actually like the ads?

    Reply

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