Perhaps Google doesn't want to define their offering in price terms, but in terms of power. Their demo focused on accelerating computations that could lead to a cure for cancer.

I think pricing is just one of the dimensions on which AWS will be beaten. Google's pricing doesn't put them out of the game, and they can lower it later.

Why would they undercut by a factor of 2? They seem to be going for better and more predictable performance at a slightly lower cost without going into the low end. I'd like to see more but I didn't really expect any major undercutting considering we already know GAE pricing.

If that's what they offer, then who's going to bother moving? AWS is there, it works, everything integrates with it and it's what everyone knows. If you're starting a site, and this is your choice, you're probably going to stick with what you know. Startups aren't generally price sensitive to 10% at that level, unrelated growth and failure will swamp any optimizations on that scale.

Minor price differentials only matter to big sites. But that's also where the cost of moving is the highest. Would you move reddit.com to Google for a paltry 10%? You'd have to think really hard about it, for sure. Maybe you have cheaper optimizations that could get you that 10% instead.

They're looking at the long term. What they announced today isn't going to make or break the business. They can always lower prices but undercutting and realizing later that they need to raise them to maintain the business model is not something they are going to flirt with again.

I don't think they expect people to migrate in waves but I think there will be a time when "we know AWS" isn't a sound argument. There are plenty of projects to come that can evaluate both on their own merits. It's what each does from today that will answer those questions.

Also, GAE no doubt will play a role. I'm interested to see what comes of Cloud Endpoints (REST APIs) and other integration we can get between the two. I think this opens up some very interesting possibilities but I won't get into that.

And let's not forget that not everyone is thrilled with AWS. It's a great service but it has flaws. Google can afford to make a long-term effort to build a solid product that goes head-to-head with AWS.