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Summary:

Amazon is offering customers unprecedented deals to stick with its cloud services. Some big companies can get annual “true up” deals while many report incentives to use reserved, rather than on-demand, instances. And Amazon is making an effort to keep startups in the fold.

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If you didn’t know better, you might think that Amazon Web Services is worried about the competition. Amazon, which makes a habit of cutting prices on its cloud services and offering all sorts of price options, is being more aggressive than usual in pushing customers to use and keep using its cloud services.

For example, the public cloud giant is pitching enterprise accounts with better-than-usual discounts if customers commit to long-term-use of reserved instances for their workloads rather than the on-demand instance options, according to anecdotal reports. In some cases, it is offering unusual “true up” deals so large companies can even out their Amazon spending over the course of their fiscal year. In a “true up” model, the customer pays an agreed-upon monthly price for anticipated usage. It may end up using significantly more or less capacity in that time but this model lets it settle up at the end of each quarter.

The company is “quietly offering up yearly pricing that allows clients to smooth out the bumps of the consumption model. [This is] attractive for large corporations with yearly locked-in budgets,” said an IT executive with a large Amazon customer. “[That means] no surprise spikes either up or down,” the exec added.

An Amazon spokeswoman had no comment, but the company’s usual stance is that it offers many pricing options to give customers a lot of flexibility. Use of reserved instances can be up to 71 percent cheaper than on-demand instances.

Amazon wants cloud commitment

The push to get big accounts to commit to reserved instances for one or three year terms is not lost on Newvem, an Israeli startup that’s building its business monitoring customer use of Amazon’s cloud and making recommendations on best deployment options.

Nevvem will now offer a service to show users which of their instances should move to reserved instances, how much they will save or not save if they move, and how to move them, says Cameron Peron, the company’s VP of marketing and business development. A quarter of Newvem’s 500 customers could save from 35 percent to 50 percent of their current bill if they make the right choice, he said.

Competitive pressures add up, even for giants

Amazon has always been competitive and continually cuts prices,  but the latest push comes at a time when cloud competitors are getting feistier and more numerous. The OpenStack cloud crowd, including Rackspace and Hewlett-Packard, are coming online and Microsoft Azure is adding more directly competitive infrastructure-as-a-service capabilities. Rivals say Amazon may be feeling the pinch — with profits under pressure while its plans to build infrastructure grow unabated.

SoftLayer, a Dallas-based competitor, says it’s winning customers like Appfirst and some gaming companies from Amazon. Donn Rochette, CTO and co-founder of Appfirst, said SoftLayer offers his company the ability to pair the scale of public cloud infrastructure and the ability to get dedicated servers for its work. And, in this case, SoftLayer ended up being less expensive than Amazon because it does not charge for data traffic flowing within its own cloud, he said.

Cloudant is working with SoftLayer, Joyent and Microsoft to provide a cloud database service that distributes applications across a global network of high-performance data centers. The company still runs on Amazon but has significantly lessened that dependence over time, largely because Amazon’s DynamoDB service competes with Cloudant.

Cloudant CEO Derek Schoettle’s nagging question is: If a customer is talking to Amazon, what kind of price concessions will it get to run DynamoDB and not Cloudant on Amazon infrastructure?

Stemming startup defections

Others report that Amazon is also getting more aggressive about keeping startups in the fold as they grow. Amazon EC2 is the no-brainer infrastructure pick for any startup. But once those companies start to scale up, they all do the cost-benefit analysis of staying with Amazon or bringing IT in-house. Many opt to do the latter, said Jason Pressman, managing director of Shasta Ventures, a Silicon Valley VC that works with many of these small companies.

“I think Amazon’s picking its spots to be very aggressive and simultaneously rethinking its overall pricing and all of this is concurrent with what Rackspace, Red Hat, and Microsoft Azure is doing,” he said. Every one of those vendors wants to compete for that infrastructure business. That is fundamentally a commodity service so they all have to compete on price, he added.

Feature photo courtesy of  Flickr user Will Merydith.

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  1. that’s what you do when your service isn’t very good and you keep going down..you lock people in

    1. That is why Openstack exists and will take off. Service and Support is key to keeping companies thriving and growing. Paying less often costs more in the long run.

  2. Piotr Banasik Tuesday, July 31, 2012

    I’m loving where Newvem is going, they check expensive resources that pass under the radar… such as stopped instances, unattached elastic IP’s, and others.

  3. Aleksandar N. Tuesday, July 31, 2012

    Never really looked into reserved instances that much in depth, it seems too complex. This tool really seems to simplify the process and tells exactly what to look at and possibly move to save costs

  4. Todd Trimmer Tuesday, July 31, 2012

    “That is fundamentally a commodity service so they all have to compete on price”

    False. The UI for the cloud services are definitely NOT the same between competing cloud vendors. There are tons of ancillary services and features they can bundle with their cloud offerings as well. There are huge differences in quality and richness for all those things. Customer support is also a differentiator.

    1. Amen. Scalability is definitely a factor also.

  5. I think Newvem is on the right track, it helps us save even more in costs. Their insights into AWS’s reserved instances helped us to easily analyze where and how we can move from on-demand to reserved.

  6. Praveen Kumar M Thursday, August 2, 2012

    One reason I see for this is Cloud Competition. And it should retain the present cloud customers not to loose them by attractive new cloud players.

    And this sereis of amazon decisions will attract more customers to their Cloud.

    We are one of the privileged customer of Amazon. We never dissatisfied with it. Still it is the one of the biggest cloud player in the world, as I see.

  7. If you always have instances up, going to reserved instances can definitely help. When I looked at what my team was doing even a small RDS instance was XX per month on demand, but if I looked at that same instance on a per year basis, it was the same price a month of ondemand was. So yeah, you have GOT to watch this stuff and actively manage it. So Newvem is on the right track, but they just have to hope that Amazon does not just do the same thing and cut them out.

    Also looking at which region you are hosted in. For example, just in AWS’ USA regions, hosting in California and Virginia both cost more than Oregon as I recall

  8. This is great if you are already on AWS, but if you are not then it’s a bit harder. I found this to compare AWS on-demand and AWS reserved instances: planforcloud.com

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