Spend Matters welcomes this guest post by Jeff Muscarella, EVP, IT Spend Management Services at NPI, a spend management consultancy, focused on eliminating overspending on IT, telecom and shipping.
The cloud pricing war between Amazon Web Services (AWS) and Google just intensified. Yesterday, AWS announced new pricing options for its Reserved EC2 Instances (RIs) in what appears to be an effort to secure a more steady revenue stream for its business while providing more pricing flexibility to customers.
While the vendor’s on-demand pricing continues to be most popular with customers, new options for RI pricing may soon change that. The RI option is ideal for customers who plan to use EC2 services for longer periods of time, although many customers have been dissuaded by the requirement that RIs must be paid for entirely up front. As of yesterday’s announcement, customers now have 3 ways to pay for RIs:
- Full upfront payment for the RI in a one or 3-year contract.
- Partial upfront payment for the RI, where a portion of the RI is paid at the start of the contract term and the remainder is paid throughout the term (at a slightly higher cost).
- No upfront payment – customers can pay for RIs as they are consumed (this option is limited to a 1-year contract).
Compared to AWS’s on-demand, by-the-hour pricing, the savings are substantial. Customers that agree to full upfront payment can save more than 60 percent. Deferred payments will still equate to savings of 30 percent. It should be noted that AWS is no longer splitting RI pricing into light, medium and heavy users. The new pricing structure focuses less on “weight” and more on how much customers are willing to pay up front.
So, how does this pricing compare to Google’s most comparable offering, its Sustained Use Infrastructure? In a word, favorably – even though Google’s option doesn’t require a usage commitment. According to RightScale, a cloud portfolio management provider, AWS comes in 11-30% cheaper depending on the VM configuration when the customer pays no upfront costs. For partial upfront costs, AWS pricing is anywhere from 1-14% less. And, for those customers willing to commit to full upfront payment over a 3-year contract term, the savings can be as high as 38%.
The industry will be watching Google to see how it reacts to AWS’s pricing shift. Meanwhile, AWS customers may finally have the motivation they need to provision cloud services using a long-term cost management strategy.