Redmond Diary

By Andrew J. Brust

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Are Pricing Models Where the Cloud Will be Won?

I may be a Microsoft aficionado, but the competition is still important, especially when it’s especially worthy. That’s why I subscribe to Amazon Web Services’ newsletter. A new issue arrived in my inbox recently and revealed AWS’ latest innovation: Amazon EC2 instances priced by bid. Specifically, according to AWS’ Web posting on the so-called EC2 Spot Instances option: “Spot Instances allow customers to bid on unused Amazon EC2 capacity and run those instances for as long as their bid exceeds the current Spot Price. The Spot Price changes periodically based on supply and demand, and customers whose bids meet or exceed it gain access to the available Spot Instances.”

I think that’s such a good idea that it almost seems absurd that Microsoft isn’t doing it. But Microsoft is doing some pricing innovation of its own: it’s including large blocks of Azure compute hours with MSDN developer annuity licenses, and it’s also planning to make Azure services eligible for inclusion in Enterprise Agreements. Given the reality that most large enterprises negotiate heavily over their EAs, this makes Azure subject to some of the same supply and demand forces that EC2 Spot Instances are beholden to.

Clearly the two approaches are rather different: Azure’s negotiability covers an array of service usage over a multi-year period, while AWS’ covers very discrete, time-limited transactions. But both companies are realizing that if the cloud is to go mainstream, it should be subject to similar arbitrage as software licenses and on-premise hardware infrastructure. Maybe Amazon will hire Bill Shatner away from Priceline.

It’s exciting to see this evolve, and it shows that a company like Amazon has more reason to be in this business than their network of data centers: they understand markets and pricing power and the cloud is a great new scenario in which that knowledge can be applied.

It strikes me that Amazon’s market pricing options would appeal more to Web businesses (especially those with temporary spike/scale needs), whereas Microsoft’s are more geared to traditional corporate customers. My fervent hope is that each company will accommodate both customer groups. They are already doing so with their technologies (Windows instances on EC2; PHP and MySQL on Azure). But I think the competition will get most beneficial for customers when the pricing schemes break barriers and comfort zones too.

Posted by Andrew J. Brust on 12/21/2009 at 1:15 PM

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