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Amazon tweaks EC2 pricing for the enterprise

The company has announced reserved pricing for its Elastic Compute Cloud, intended to sway IT executives to adopt more of Amazon's Web Services
Written by Larry Dignan, Contributor

Amazon has tweaked its Elastic Compute Cloud pricing model to be more enterprise friendly. The move is significant enough to sway IT executives to adopt more of Amazon's Web Services — especially when they have tight budgets.

On Thursday Amazon announced reserved pricing for its Elastic Compute Cloud (EC2) instances. Simply put, customers can reserve instances for one-year and three-year terms as if they owned the hardware. Enterprises can guarantee they have an EC2 instance for computing power they know they'll use and buy on the spot market to account for spikes at the usual Amazon rate. Under Amazon's model, customers only pay for the computing power they use even if instances are reserved.

Enterprises have begun to use Amazon's web services more in recent months and the economic downturn has only accelerated those moves. However, enterprises view the Amazon EC2 as a way to add capacity for spikes and pilots. These corporations haven't been swayed to put more of their infrastructure on Amazon's platform because they are still evaluating the feasibility and return on investment.

Peter DeSantis, general manager of Amazon's EC2 business, said the company's latest pricing may help the return on investment case for enterprises. By reserving instances under one-year terms, the savings are roughly 30 percent for customers. A three-year term adds up to be about a 50 percent saving.

"We had a lot of the feedback from enterprise customers. They want to know that their datacentres have boxes when they need them," explained DeSantis, who noted that there is a big menu of pricing options.

In practice, technology executives can now have the comfort of knowing they have a set number of instances reserved without the added investment of adding upfront capacity.

Reserved vs spot market EC2 pricing
Depending on how enterprises mix and match these pricing alternatives, the savings can add up. A Linux/Unix box paid for hourly will run you 40 cents an hour for a standard large on-demand instance. That equates to about $3,500 (£2,500) assuming 24/7/365 coverage. If you reserve that instance over a year term, Amazon will charge you $1,300 per instance plus the 12 cents per hour. That comes out to $2,351. Multiply those savings ($1,152) over 100 instances and you the result is substantial: $115,000 a year or so.

A three-year option under the same assumptions yields an on-demand price of $3,500 a year ($10,500 over three years). A reserved instance is $2,000 plus 12 cents an hour. With around-the-clock coverage, you get a price of $5,153 per instance over three years. Savings of on-demand compared to reserved per instance are $5,346. Across 100 instances, the savings comes out to $534,600 over three years.

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