Since November, the three leading cloud storage vendors have slashed prices for data storage per month, offering massive discounts for the first terabyte. Amazon Web Services reduced prices by up to 28% to 9.5 cents, extending reductions to its nine regional centers. Google Cloud Storage dropped data rates by 30% to 8.5 cents. Microsoft Windows Azure slashed its prices by 12% to 8.5 cents.

Vendors are cutting prices to attract as many early cloud adopters as possible, with the knowledge that switching service provider later might prove to be difficult for customers.

"It's definitely a race, but it's a land grab," said Terri McClure, senior analyst at the Enterprise Strategy Group (ESG). "The race is to the bottom to get more data into the cloud. They are trying to accelerate adoption because the service is very sticky. Once data is in the cloud, it's hard to switch providers."

Steve Zivanic, vice president of marketing at Nirvanix, a San Diego based cloud storage provider, said the three dormant cloud providers keep competing on price because their services are similar.

"If you have no technology differentiation between clouds, then it's the same as disk-drive vendors waging a war for the lowest price per raw drive," said Steve Zivanic, "The key is to wrap advanced storage services around the physical drive and sell business value of that overall service. The price cuts between Amazon, Google and Azure are basically battles for cheap, raw online disk."

An analyst for IT infrastructure and cloud at 451 Research Cloud, Carl Brooks said that while storage prices have come down, the costs of bandwidth, replication, security, compliance and maintenance, make the price of cloud storage high compared to on-premises storage.

"Cloud providers are well over the cost of actually provisioning on-premises storage," said Carl Brooks. "Hard drives are almost a commodity at this point. We have not seen that in the cloud market. The trend behind the price cuts are more about cloud providers trying to get ahead of the trend. They don't want to be undercut by other vendors."

"Amazon, Azure and Google cut prices to continue to be relevant," Brooks said further. "You are going to see price competition for a couple of years, and you will see cloud service providers go out of business.

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