Amazon has changed the pricing model of its cloud computing platform, Amazon Web Services, creating what’s called “Reserved Instances” for its EC2 Product. Reserved instances basically lower the price of the service and guarantees storage capacity in exchange for a commitment to use EC2 for a year or more.
Amazon says that its new pricing model lowers cloud computing costs for businesses. Customers make a one-time payment for each instance they want to reserve and in turn receive a significant discount on the hourly usage charge for that instance. (An instance is Amazon’s unit of computational capacity). After the one-time payment, the instance is reserved and there is no further obligation; customers only pay for the compute capacity that they consume. For example, an on-demand EC2 Small instance costs $0.10 per hour. For a one year commitment for the EC2 reserved instance, the cost is $0.067 per hour, including a one-time reserved instances fee and usage cost. Amazon compares the one-time fee to “acquiring hardware,” and the hourly usage fee to “operating costs.”
Here’s the breakdown of the on-demand instances costs vs. the reserved instances costs:
Amazon has started to become a big player in the cloud computing space, adding a partnership with IBM recently. No doubt, Amazon is trying to get a long term commitment to its cloud computing platform from businesses. Microsoft’s cloud computing platform Azure is scheduled to launch sometime this year, so perhaps Amazon is trying to lock in customers before Azure’s debut.