When the Cold War ended, President Bush (senior) used to talk about the peace dividend, the downstream economic benefit of reductions in defense spending. Echoing these words, one of my CEOs declared to me the other day that last week's activity in the cloud may have been one of the most important weeks in technology history, but we won't realize it for many years to come.
At Flybridge, we have long believed that the advent of cloud computing is the most important force in technology in decades. The entire Lean Start-Up movement and the recent proliferation of start-ups has been enabled by cheap computing power and storage. When I was an entrepreneur starting my company, Upromise, we had to buy big Sun servers for millions of dollars to launch our fledging website. Today, that same compute power is available to start-ups for a mere handful of dollars per hours.
Historically, Amazon's cloud offering (Amazon Web Services, or AWS) had little competition and, as a result, some have observed that as amazing as the cloud has been for start-ups, cloud pricing has not dropped as aggressively as Moore's Law would have suggested it might.
But Google finally appears to be catching up in the ever-important cloud services area. Last week, at its Cloud Platform Live conference, Google slashed pricing on their cloud platforms over 50%.
Then, a day later, at its AWS Summit, Amazon countered with its own radical price cuts from 36-65%. Despite those price cuts, Google is still cheaper than AWS in many categories. See the chart below, which GigaOm published, to show the comparison of the two offerings.
So why did my portfolio company CEO think this last week of price cuts was so historical? Because cloud infrastructure is like fuel for startups. As startup fuel prices go down, the downstream effect is powerful: starting and scaling companies has gotten yet even cheaper. With Google and Amazon battling it out, and IBM and Microsoft and others not far behind, this trend is only going to continue.
We have made a number of direct investments on companies circling around cloud infrastructure, startups like MongoDB, Stackdriver, Firebase and Apiary, to name a few. But what last week's price wars demonstrate is that the entire technology ecosystem will reap indirect benefits as well. The cloud is becoming a commodity, prices are going to zero, and technology companies around the world are celebrating.