Amazon Web Services will continue to lower its prices for IaaS (Infrastructure as a Service) and PaaS (Platforms as a Service) for a number of different reasons. But that doesn’t mean that your public cloud costs will go down over time. Over the past 2 years I’ve seen SMB’s and Enterprise firms surprised by rising cloud costs despite the falling rates. How does this happen? And how can your business get ahead of the problem?
How AWS can lower its rates over and over again
First is the concept of capacity planning, which is much different in the public cloud when compared to the traditional days of voice and data infrastructure. In the “ole days” we used the 40-60-80 rule. Due to the lengthy lead times to order circuits, rack equipment, run cables and go-live, enterprise IT organizations used 40-60-80 as triggers for when to act on new capacity building activities.
At 40% utilization, the business would begin planning for capacity expansion. At 60% utilization, new capacity would be ordered. At 80% utilization, the new capacity would be turned up and ready for go-live. All this time, IT planners would run around from Business Unit to Business Unit trying to gather their usage forecasts and growth plans for the next 12-24 months. It was a never ending cycle. Wow – that was exhausting!
Second is the well-known concept of Economies of Scale, which affords AWS cost advantages due to the sheer size, scale and output of its operations globally. Simply put, more customers will lead to more usage, and Amazon’s fixed costs will be spread over more customers. As a result, the cost per unit (EC2 usage hour, Mbps of Data Transfer, or Gigabyte of S3 storage) will decrease. A lower cost per unit allows Amazon to safely lower its prices and lead the market in public cloud adoption.
In the public cloud world, Amazon can gauge customer commitment, capacity planning and growth estimates by offering reservations for its infrastructure – otherwise known as Reserved Instances. Historically Reserved Instances come in six different types – No Upfront, Partial Upfront and Full Upfront (referring to the initial down payment amount) and offered in a 1-year or 3-year commitment.
No Upfront RI’s have the lowest discount factor over the commitment term, and Full Upfront RI’s have the highest discount factor. With the help of Reserved Instances, AWS has been able to plan its capacity in each region by offering customers a discount for their extended commitment. Genius!
New Reserved Instances
But it gets better. In January, AWS released a new type of Reserved Instance that gives the customer more time control and also provides Amazon with more insight into what time of day the AWS resource will be used. Why is this new “Scheduled Reserved Instance” important?
Well, a traditional RI is most effective when the instance runs all day and all year. There is a breakeven point for each RI type, but for simplicity let’s assume that the resource should be always-on to achieve the maximum savings.
However a Scheduled Reserved Instance allows the customer to designate which hours of which day the resource will run. Common use cases include month-end reporting, daily financial risk calculations, nightly genome sequencing, or any regularly scheduled batch job.
Standard Reserved Instances
Before the Scheduled RI, the customer had 3 options – (1) run the compute on-demand and pay the highest price, (2) reserve the compute with a Standard Reserved Instances (SRI) and waste the time when the job’s not running (known as spoilage), or (3) try to run it on Spot Instances and hope their bid is met with available capacity.
Now there’s a fourth option – The Scheduled Reserved Instance. Savings are lower, typically in the 5-10% range compared to on-demand rates, but the customer has incredible flexibility in scheduling hours and recurrence. Oh yeah – and did I mention that AWS can now sell even more excess capacity at a discount?
With so many options available to AWS customers, it’s important to find an AWS Premier Partner that can analyze each cloud workload and recommend the right mix of cost-reducing techniques. Whether the application usage pattern is steady state, spiky predictable, or uncertain-unpredictable, there is a combination of AWS solutions designed to save money and still maintain performance. Contact 2nd Watch today to learn more about Cloud Cost Optimization Reports.
Zach Bonugli, Managed Cloud Specialist