Amazon EC2 price cuts benefit enterprise contract customers

Amazon Web Services’ latest round of cloud service price cuts offer large contract customers deep discounts for Amazon EC2.

Amazon Web Services' latest price cuts will surely cheer existing contract customers and probably even attract some new ones, but it may not cause a big surge in the company's subscriber base.

AWS announced Monday that it is cutting prices for users of Amazon Elastic Compute Cloud (EC2), as well as for Amazon Relational Database Service (RDS), Amazon ElastiCache and Amazon Elastic MapReduce. This is the nineteenth time AWS has lowered prices since 2006, said Jeff Barr, a company evangelist, in a post to the AWS Blog.

[AWS is] constantly looking for efficiency gains and passing them along to customers. But this isn't going to cause enterprises to say, 'let's go do it now.'

Kyle Hilgendorf, principal research analyst, Gartner Inc.

While the cost savings are real and will put some pressure on cloud competitors' pricing, another set of Amazon EC2 pricing cuts doesn’t constitute a big shift from the status quo, according to Kyle Hilgendorf, principal research analyst at Gartner Inc.

"[AWS is] constantly looking for efficiency gains and passing them along to customers," Hilgendorf said. "But this isn't going to cause enterprises to say, 'let's go do it now,'" he added.

But the new pricing will benefit existing customers, particularly those in term contracts.

"Today’s Amazon EC2 price reduction varies by instance type and by region, with reserved instance prices dropping by as much as 37%, and on-demand instance prices dropping up to 10%," Barr's post read.

Amazon EC2 pricing structures

Amazon has two basic chargeback models -- on-demand and reserved instances. Many, if not most, customers pay for EC2 instances on an hourly basis using the classic pay-as-you-go, on-demand model. If that doesn't work, customers pay monthly for so-called reserved instances on a yearly or three-year contract that makes costs more predictable over time and guarantees the ability to scale up quickly.

"[Reserved instances] give customers more flexibility and a better understanding of what their bill's going to be each month," Hilgendorf added. "The pure pay-as-you-go model isn't always the best for customers."

So how do the new price cuts affect large customers, particularly those on reserved instances plans?

"If you own more than $250,000 of reserved instances, you qualify for a 10% discount on any additional reserved instances you buy,” Barr added. “If you own more than $2 million of reserved instances, you qualify for a 20% discount on any new reserved instances you buy."

However, also highlighting the benefits for smaller customers, Barr noted that a small website that cost $876 per year using on-demand pricing in 2006 would cost $250 per year -- less than a third the cost -- on the reserved instances plan today.

Price cuts also apply for Amazon RDS, ElastiCache and Elastic MapReduce, with rates for RDS discounted by as much as 42%.

Stuart J. Johnston is Senior News Writer for Contact him at

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