Cloud capacity planning gets more flexible with new Amazon marketplace

IT shops can buy and sell unused Amazon reserved instances through a new marketplace, which should make cloud capacity planning less cut and dry.

Cloud capacity planning can be a sticky wicket, as users struggle to choose between up-front fixed costs and unpredictable...

on demand prices.

One potential solution comes from Amazon, which will let its Elastic Compute Cloud (EC2) users sell excess purchased computing capacity to others through a new online service called the Reserved Instance Marketplace. It's designed to help users recoup the losses from purchasing too much computing capacity -- a classic problem in IT, according to James Staten, analyst with Cambridge, Mass.-based Forrester Research Inc.

“If you know how much of a certain class of instance you’re going to use over the year, you can pre-buy them at a significant discount," he said. "But if you’re wrong and you don’t actually need as many as you thought … there’s no getting that discount back.”

The problem with cloud capacity planning

Until this week, Amazon offered three types of EC2 instances: On-Demand Instances, Spot Instances and Reserved Instances.

On-Demand Instances are paid for by the hour, with no up-front fees or long-term commitments, but are the most expensive way to use Amazon Web Services (AWS). Spot Instances are acquired through a bidding process where customers specify a price per hour they want to pay, and when an EC2 instance becomes available at that price, the application runs. Reserved Instances are offered for one- or three-year terms at rates between 20% and 40% lower than On-Demand Instances.

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Enterprise users often buy Amazon Reserved Instances to get this discount, but that can lock them in to less-than-satisfactory configurations, because they are obligated to keep paying for those virtual machines -- with the same regions, sizes and operating systems -- for the term of the agreement.

With the Reserved Instance Marketplace, Amazon aims to give users more flexibility around cloud capacity planning. They can sell the unused Reserved Instance capacity or purchase Reserved Instance capacity from others at potentially reduced rates.

“The majority of the enterprises that we talk with buy reserved instances,” Staten said. “So we think this is a very significant change in [Amazon’s] service.”

Buying and selling Amazon Reserved Instances

Amazon will charge a 12% seller’s fee, but otherwise, if a user purchases a one-year Reserved Instance at $1,000 and sells it six months in, that instance would ideally sell for $500.

The emphasis there should be on ideally, said Jeremy Przygode, a Los Angeles-based AWS reseller.

“Can you get $500 for the remainder of contract, or is the market only going to want to pay $200 for it and you’d still lose $300?” he said.

This is a very significant change.
James StatenForrester Research

On the flip side, prices could also rise in U.S. regions where Reserved Instance capacity is sold out.

“It remains to be seen,” Przygode said. “The market will bear that out.”

Amazon's approach to improving cloud capacity planning is unique, and no other cloud provider is large enough to offer its own marketplace, said Carl Brooks, infrastructure services analyst with 451 Research.

"Amazon is showing off the depth of customer commitment to its platform," he said. "It's built a massive customer base out of thin air for AWS over the last four years, and now it's letting them loose on each other."

Beth Pariseau is a senior news writer for and Write to her at or follow @PariseauTTon Twitter.

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