Home Amazon’s New EC2 Instance Pricing: Too Complex, or Just Right?

Amazon’s New EC2 Instance Pricing: Too Complex, or Just Right?

Amazon has added two new EC2 reserved instances, so that users now have the choice of four pricing models for EC2 instances. Seven, if you count choosing between one-year and three-year terms.

A quick refresher might be in order. Amazon started with a single price for its EC2 instances, then added reserved instances in 2009. The reserved instances give you a break on instance pricing in exchange for an up-front fee per-instance.

For example, if you expect to be using a lot of time for an Small Linux EC2 instance, you can pre-pay $227.50 for one year to bring the cost of the instance down to just $0.03 per hour. Without the pre-paid fee, it’s $0.085 per hour.

Prior to this week, Amazon only offered one tier for reserved instances – now they’re expanding that to tiers for light, medium and heavy usage. So if you expect to make heavy usage of an instance, you pay a higher up-front fee but drop the price of the hourly usage. If you expect to use an instance less often, you can trade that for a lower fee but higher per-hour fees. The only question is, how the heck do I know which pricing tiers I should choose? Here’s Amazon’s guidance on the matter.

One way to determine which pricing model to use is by choosing the Reserved Instance pricing model assuming you are optimizing purely for the lowest effective cost. The chart below illustrates your effective hourly cost at each level of utilization. As you can see, if your instances run less than ~15% of the time or if you are not sure how long you will need your instance, you should choose On-Demand instances. Alternatively, if you plan to use your instance between ~15% and ~40% of the time, you should use Light Utilization Reserved Instances. If you plan to use your instance more than ~40% of the time and want the flexibility to shut off your instance if you don’t need it any longer, then the Medium Utilization Reserved Instance is the best option. Lastly, if you plan to use your instance more than ~80% of the time (basically always running), then you should choose Heavy Utilization Reserved Instances.

Note that Amazon is also, no pun intended, reserving the right to change the hourly fee for Windows instances if Microsoft increases its licensing fees. If that happens, Amazon will let customers know with 30 days notice and give the option of using them at the new rate, converting them to Linux instance or give a pro-rata refund on the up-front fee.

As far as I know, Amazon is the only IaaS provider that’s doing this sort of pricing. Amazon is still well ahead of other IaaS providers in terms of the depth and maturity of its offerings. Think we’ll see any catch-up in 2012?

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