AWS has a variety of ways customers can pay for using its cloud-based virtual machines. The most common is an on-demand pricing model where customers enter credit card information and pay for virtual machines by the hour.
For customers who plan to use the resources for a longer period of time, AWS offers Reserved Instances (RI) that carry a contract of either one or three years. Previously customers had to pay for those RIs up front, but today AWS announced that customers can pay for the RIs throughout the life of the contract.
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In a blog post on the company's website, AWS says that customers have three ways of paying for RIs now: Customers can pay for the reserved instance entirely upfront in a one or three year contract; instances can be paid for partially upfront, meaning that a portion of the RI is paid for upfront and the remaining is paid for throughout the life of the contract. Or, customers can choose to pay for the RIs as they are consumed with no up-front payment. In the last scenario, even though customers do not pay for the RIs up front, they are still committing to paying for them throughout the life of the contract.
RIs offer advantages to both the user and AWS. For users, it guarantees a discounted price of a virtual machine throughout the life of the contract, and it secures the capacity in Amazon's cloud. In return, customers can save more than 60% compared to using on-demand, by-the-hour pricing when paying for the RIs entirely upfront. When customers defer RI payments the savings is about 30% compared to on-demand pricing. For AWS, RIs create a steady revenue stream and usage of its cloud by customers.
AWS also offers some volume discounts, including up to a 5% discount for between $500,000 and $4 million of usage, and a 10% discount for between $4 million and $10 million of usage. AWS also allows customers to resell their unwanted RIs on a marketplace that it runs.
The new system replaces an old model that used light, medium and heavy RIs and offered customers different levels of discounts. That model caused confusion for some customers, says Toban Zolman, vice president of product development at AWS cost tracking company Cloudability.
For enterprises, the all upfront-payments are similar to enterprise agreements they make to buy servers for a data center. For startup companies, they can now get the advantage of RI pricing without paying for it upfront.
Cloudability Chief Customer Officer J.R. Storment says not nearly enough customers the company works with take advantage of RI pricing though. Still too many users are leaving savings on the table by using on-demand instances. If a company plans to use AWS for more than six months, and it plans to grow that usage over time, then Storment says it's worth it to look at RI pricing.