Amazon Web Services quietly did a 'complete overhaul' of its pricing in a move that can save customers money while also making it harder for them to leave
- Amazon Web Services introduced a new discount model to make it easier for customers to save money - while simultaneously making it harder for them to switch to a competitor's service.
- The Seattle-based company is offering discounts to customers if they make a one- to three-year commitment for a minimum amount of spending on its cloud platform.
- The move is meant to help AWS hold onto its lead in the cloud-computing market, where runner-up Microsoft is gaining traction, including recently beating Amazon to a $10 billion Pentagon cloud computing contract.
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Amazon Web Services just made it easier for customers to save money on its most popular service - and more difficult to switch to competitors like Microsoft Azure and Google Cloud.
The Seattle-based company has long offered discounts to its most dedicated customers. Before, those discounts required users to rent specific servers (or, at least, types of servers) from Amazon in advance, in a program known as Reserved Instances.
The big change is that Amazon's discount model now requires customers to make a one- to three-year commitment for a minimum amount of spending on the platform.
This new model, which AWS is calling Savings Plans, not only makes it easier for customers to save money but makes it harder for them to move onto a cloud competitor. After all, once you're under one of those long-term deals, you could walk away from AWS, but you'd still be on the hook for those cloud bills.
Doing so could help AWS hold onto its lead in the cloud-computing market, where runner-up Microsoft is gaining traction, including recently beating Amazon to a $10 billion Pentagon cloud computing contract.
Corey Quinn, cloud economist at a company that helps AWS customers manage spending called the Duckbill Group, said the new saving plans represent a "complete overhaul" of AWS pricing.
"This is a big deal," he told Business Insider. "It makes it easier for people to save money and means customers don't have to spend a few days a month with a spreadsheet."
How it works
Amazon Elastic Compute Cloud, known as Amazon EC2, is the company's most popular cloud service. It allows customers to rent virtual servers, hosted in Amazon's own massive data centers, which they can use to run their own applications.
AWS charges customers to use the service in two ways: either paying as they go for the compute capacity they use, or paying in advance for what they think they'll use.
The latter option, called Reserved Instances, can save customers a lot of money, but also required customers to do the tricky math involved in accurate predictions of how much computing power they were going to consume in the near future in order to get good value from it.
Under the Reserved Instances model, companies had to choose which kind of instances, or virtual servers, they wanted, selecting from a variety with different amounts of memory and processing power.
The company this week released a new, easier way for customers to pay in advance and, ultimately, save money. It's called a Savings Plan.
The company has two new Savings Plans to give customers more flexibility. The most flexible option, called Compute Savings Plans, lets customers reserve any instance family - instance types grouped together based on compute, memory, and storage capabilities - in any region. That can save them as much as 66 percent, AWS says.
They can save more, as much as 72 percent, through EC2 Instance Savings Plans, which are limited to a specific instance family within a region - less flexible than the other savings plan, but more flexible than the previous model.
Under the new model, customers only have to plan for a minimum amount of spending over the next one to three years. They commit to spending a certain amount per hour, and anything above that just moves to the normal, pay-as-you-go price.
Why it matters
Providing discounts helps the platform companies move customers to the cloud and keep them there. Amazon invented the notion of Reserved Instances, but cloud competitors Microsoft Azure and Google Cloud later introduced their own variants - in both cases, considered to be more flexible than Amazon's version, Quinn said.
Amazon's new discount model is more flexible, makes it easier for AWS customers to plan for capacity and makes it harder for customers to switch to another plan, Kim Weins, vice president of cloud strategy at IT management company Flexera, said.
Under the previous model, customers had to spend a lot of time and money up front to come up with a plan to maximize their use of AWS, or else risk reserving servers they don't end up using, sort of like leasing a car and leaving it in the driveway, Weins says.
The new Savings Plans ensure higher utilization and less waste. There are, however, caveats, Weins said. The EC2 Instance Savings Plan isn't much of an improvement on Reserved Instances because customers still have to pick an instance family and region, and the Compute Savings Plan doesn't offer as much of a discount as its predecessor.
In addition to introducing the new discount model, Amazon is investing in AWS by hiring more marketing and salespeople for the unit. AWS is a major profit driver for the Amazon empire. The business raked in $9 billion in Amazon's most recent quarter, and was responsible for nearly 72 percent of the retail giant's operating income.