Where’s my cloud price cut?

A previous version of this story included incorrect information about pricing of reserved instances and incorrectly stated that AWS had raised its prices in April.

Amazon Web Services has become well-known for its price cuts — it’s announced 45 of them over the last eight years. And often, the cuts are substantial: For example, AWS announced price cuts as high as 56 percent effective April 1, 2014.

It’s not just [company]Amazon[/company] that is making massive price cuts: in the first half of this year, we saw a raft of price cuts from [company]Google[/company] and [company]Microsoft[/company] Azure, too. The cloud pricing world is beginning to look a lot like the airline ticket pricing world where cuts by one airline are quickly matched by another airline.

But as any traveler knows, while airlines may cut some prices, they also raise others, adding baggage fees or charging higher prices for travel at peak times times.  All this means the customer may not actually see the advertised fare reductions in normal usage. Guess what — a similar thing occurs in the cloud pricing space.

Despite the advertised price cuts by AWS, consumers might not actually see that level of reductions in their bills. Price reductions are usually on specific configurations and offerings, not necessarily what customers typically use (not unlike the “sales” you see at department stores to get shoppers in the door).

And while AWS cut prices on several services in April, it also kept prices of some services — such as data transfer and certain flavors of reserved instances — the same. Here’s an example of specific Reserved Instance changes:

m3 Reserved Instance Pricing, US East (Virginia), 1 year term General Purpose VM
January 2014 April 2014
Upfront Hourly Upfront Hourly Change in Upfront fee
Light Utilization (m3 Medium) $110 $0.064 $110 $0.064 0%
Medium Utilization (m3 Medium) $259 $0.039 $181 $0.027 -30%

In the same time period, AWS changed its discount table, reducing the discount on Reserved Instances:

AWS Reserved Instance Spend AWS Reserved Instance
Volume Discounts
AWS Reserved Instance
Volume Discounts
Spend < $250K 0% 0%
$250K ? Spend < $2M 10% 5%
$2M ? Spend < $5M 20% 10%
> $5M Negotiated Rate Negotiated Rate

The combination of price cuts and changes in the discount table will result in a net price cut that could be different than what you might expect.

A typical customer will use a mix of services. Some of them will be impacted by price reductions and others won’t. Because of this, it’s important for cloud customers to take a close look at what they’ll actually be paying for their full set of services.

The public cloud providers — all of them, not just AWS — aren’t particularly clear about the narrow applicability of certain price cuts, and certainly don’t advertise price increases the way they do price cuts. It’s really hard to figure this out because public cloud pricing from any provider and the subsequent billing is so complex that it’s near impossible to understand how the amazing and loudly broadcast price cuts translate into an actual benefit for you.

We encourage cloud consumers to more diligently analyze their cloud bills and to compare different cloud providers at more than just a surface level (e.g. at just the VM pricing level). It is best to do this at the complete application infrastructure and services level. Going through exercises like this will help you determine how much money you’re really saving and whether switching providers based on a new offer is the right choice for you.

Praveen Asthana is chief marketing and strategy officer at Gravitant, a software company that enables enterprise IT organizations to become cloud service brokers. Prior to joining Gravitant, Praveen was VP of marketing and strategy at Dell.