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Cloud Talk

Andre Yee

The Future of Cloud Computing Pricing

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About 3 months ago, Amazon released Spot Instances, a new offering based on a dynamic pricing model. The basic idea is that customers get to bid on unused EC2 capacity. Assuming the bid exceeds the "spot price" assigned by Amazon, customers will have use of the instance for the hour. The downside is that your processing may be terminated if you're ongoing bid for next cycle isn't higher than the new spot price. This wouldn't work for a lot of mainstream application level processing but it might for a specific types of processing like scientific research, financial modeling, etc... Amazon also offers tips on how build applications that will accommodate the risk of sudden termination.

Not withstanding those issues, this offering is breakthrough from most other cloud computing pricing models because pricing is dynamic, fluctuating based on supply/demand. Yet, isn't this the natural progression of where cloud based pricing should go? As cloud computing commoditizes storage and processing, providers behaves more like a utility- "price discrimination" based on supply/demand is an obvious next step. After all, your electricity utility company has been doing by time based pricing for ages - offering lower pricing for "off-hours" consumption.

Time based pricing isn't what Amazon's doing here since they are simply putting up unused processing capacity up for bid but it may work just as well. I predict that some customers currently buying fixed instances will opt for the spot instance pricing for low priority processing. If enough customers move to this newer model, it will bid up these spot prices and normalize the price of EC2 processing across the board.

Here are the questions I have about the future of cloud computing pricing:

- Will other providers roll out different pricing models discriminating on time, usage models or vertical industries?
- Is this only for IaaS and PaaS or will SaaS based pricing radically change moving forward? Currently SaaS providers seldom charge on a monthly basis, much less with a variable, dynamic model. In part, it's because applications are viewed as a commoditized resource but rather as a strategic advantage. Longer term contracts are preferred also because enterprises are accustom to buying in that way. If you're committing to use an enterprise app for some extended period of time, monthly billing isn't really helpful or efficient.
- In a couple of years, will we look back on Amazon's spot instance pricing as revolutionary or a failed experiment?

Andre Yee blogs about cloud computing, SaaS, Web 2.0 and other emerging technologies that matter to businesses.

Andre Yee

Andre Yee is an entrepreneur and technologist with nearly 20 years of experience in the business of technology.

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