Understanding AWS EC2 Pricing

Understanding AWS EC2 Pricing

Companies are experiencing significant business benefits using Amazon Web Services (AWS) to run their production and non-production workloads in the cloud. One of the key benefits is cost. Companies no longer need to outlay capital for hardware, software, etc. Companies need only to pay for what they use, when they use it. In fact, it is not uncommon for companies to save 40%-70% by running applications on AWS versus a co-location or on-premises (see TCO calculator). Below is a summary of how to take advantage of AWS Elastic Compute Cloud (EC2) pricing.

On-Demand Instances – On-demand instances enable companies to pay for compute capacity by the hour without a long-term or up-front payment (capital expense is replaced with variable cost). Companies can increase or decrease c0mpute capacity as needed and only pay for what they use. For data transfer and storage, pricing is tiered; the more is used, the less is paid per gigabyte. On-demand instances are recommended for 1) development and test environments, 2) unpredictable workloads that cannot be interrupted and 3) users that want flexibility and low cost.

Reserved Instances – Reserved instances (RIs) enable companies to make a low, one-time, up-front payment to hold compute capacity for a one- or three-year period while paying a significantly lower hourly rate. RIs can provide overall savings between 42% and 71% over on-demand. Additional discounts can be achieved based on volume. RIs are recommended for 1) applications that require reserved compute capacity, including disaster recovery, 2) applications with predictable or steady-stage usage and 3) users looking to reduce total compute capacity costs even further.

Spot Instances – Spot instances provide companies with the ability to purchase compute capacity without an up-front payment and at hourly rates lower than on-demand. Spot prices are set by AWS and fluctuate with supply and demand. If spot prices move higher than the company specified it is willing to pay, the instance will shut down. Spot instances are recommended for 1) applications only feasible to run at very low prices, 2) applications with disruptable or non-time-insensitive workloads and 3) users with urgent needs for significant, additional compute capacity.

Trusted Advisor – AWS provides the Trusted Advisor tool to companies with business- and enterprise-level support and can be integrated into their applications via API. Trusted Advisor helps companies to provision resources by following best practices. Trusted Advisor inspects a company’s AWS environment and makes recommendations when opportunities exist to close security gaps, improve performance and save money. In 2013, Trusted Advisor made one million recommendations and helped companies realize $207M in savings.

Economies of scale also provide AWS with a competitive advantage for cost and pricing. According to Gartner, AWS is five times larger than the next 14 infrastructure-as-a-service providers combined on its magic quadrant. In fact, every week, AWS adds enough compute capacity to operate Amazon.com when it was a $7B company. AWS’ culture is to pass saving onto its clients as it scales. Because of efficiency gains, AWS has reduced its prices 42 times since 2006. The result is AWS can provide clients with lower variable cost than they can do themselves.

All contents copyright © 2014, Josh Lowry. All rights reserved.


One Response to Understanding AWS EC2 Pricing

  1. Steve Smith says:

    Great post, most informative.


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