Have You Gotten Your Cloud Discount or Credits Yet?

February 9 2015 | by Vittaly Tavor Cloud Cost Management, Cloud Optimization

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It seems as if cloud offerings are becoming more complex by the day, beginning with the wide variety of available products and features all the way down to calculating their respective prices. With that, there are different types of packages for nearly everyone’s needs (i.e. usage parameters, startup aid, enterprise maintenance, etc…). Consequently, these options, along with the ability to perform cross cloud operations, make for an extremely complex environment. The question is, with so many choices, how can you manage the cloud for optimal savings? In this post, we will share some tips on how to reduce cloud costs in your own unique environment.

Usage Based Cloud Discount

The revolution of cloud computing introduced the pay-per-use model to the world of IT, creating a significant shift from Capex to Opex. This extremely convenient and money saving element enhanced the allure of cloud computing and storage. Never before was the concept of paying for the amount of time you actually use (and not paying for what you don’t) brought to light. Nonetheless, while it seems ideal, two drawbacks have been uncovered over the years. Pay-per-use actually becomes much more expensive for users (than traditional methods) if their clouds are in constant use. On the other end of the spectrum, however, providers find this method quite risky since users are not required to pay in advance, making migration between clouds an easily available and common alternative. Without set commitments or attachments to specific providers, users are free to use whomever they please.
As a result, providers took a stab at overcoming both of these drawbacks by providing various types of discounts, which roughly fall into two categories: discounts based on aggregate usage and discounts based on sustained usage. Cloud customers who choose to operate according to aggregate usage can purchase a bank of hours (Azure monthly commitment packages, for example), or a specific amount of committed usage. They then pay a specific amount of money that can be applied either on an hourly basis or evenly distributed throughout the month. As a result, users end up paying a notably lower price for the agreed upon usage plan, the the normal price after the plan is exhausted.

Azure Commitment Packages:
cloud discount
On the other hand, sustained usage follows the model of users paying less if instances run for extended periods of time. Amazon Reserved Instances discount is a great example of this, as is Google’s Sustained Use Discount. AWS Reserved Instances Potential Savings:
Google Sustained Use Discount:
cloud discount

Both of these types of sustained usage discounts offer users reasonable prices for future capacity planning. As for the vendor disadvantages mentioned above, Amazon’s Reserved Instances package does include a one time fee that commits users to Amazon for a specified period of time.

Google cloud functions a bit differently, however, providing users with a 30% discount if they run instances around the clock (even if the instances change).

“For computing sustained use, equivalently provisioned machines running non-concurrently are treated as Inferred Instances – An inferred instance combines multiple, non-overlapping instances of the same instance type in the same zone into a single instance for billing. This gives you the flexibility to start and stop instances freely and still receive the maximum sustained use discount available across all your instances.” Learn more.

cloud discount

For example, if you run 720 instances a month, and have only one instance running per hour, you qualify for the 30% discount. However, if you run the same 720 instances at one time, no discount is available.

In our recent post, Per CPU Cycle or per Hour? The Cloud Cost Model, we explored different cloud cost models and approaches based on real life cases, including AWS cost, Google, Heroku and Azure.

The Tier Discount

All of the large cloud providers offer a tier discount, where users pay one flat fee for a certain amount of usage. Then, when that initial usage threshold is crossed, users pay a lower and lower price for each following threshold. For example, as seen below, Amazon has a set price for an initial terabyte of space in S3 storage. If you need more than just the one, the next 50 terabytes can be purchased for a lower price than the first, and if yet another batch is needed, it is available for an even lower price, and so on. Similarly, CDN offers a tier discount, where users pay a flat fee for a certain number of gigabytes per month. AWS S3 Pricing Tiers:
cloud discount

The Large Enterprise and Reseller Cloud Discount

Traditional enterprises are used to “making deals”, however, AWS is not keen on price negotiations. Instead, Amazon offers a customer agreement for large enterprises that operate according to sustained usage, which includes a customized discount for all services and usage.

Since cloud providers encourage resellers and service providers to distribute their services, they have types of reseller or distributor agreements in which distributors receive credits that act like specific discounts for cloud vendor partners. For example, AWS reseller partners of Amazon can acquire credits for aggregate use of Amazon services for all of their customers, then negotiate the discounted price with Amazon. If you’re a small reseller, however, Amazon offers list prices.

Startup Benefits

Cloud vendors understand the challenges small companies face, as well as the great potential they hold. Today, you can find startup success stories, such as Airbnb, that are completely hosted on the AWS cloud. Consequently, many cloud vendors are now proposing their own startup programs. AWS Activate is ideal for startups that have resource constraints, offering startups between $1,000 and $15,000 in AWS credits. Similarly, Google has a special cloud platform for startups that offers up to $100,000 in Google Cloud credits

Final note

It is evident that pay-per-use was a great starting point for the cloud revolution’s pricing model. Nonetheless, cloud vendors still have to adapt and reshape their business models over time to address issues as they arise. Both cloud users and providers, alike, benefit from these various discounts. From a user’s perspective, however, it is important to be aware of which discounts you qualify for when choosing a cloud provider in order to ensure both a lucrative and efficient outcome.

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