Gaming the Amazon Spot Market

Amazon Web Services announced a couple of days ago that they would be auctioning off excess compute capacity in their cloud. This is a huge deal for a bunch of reasons … but I’m really interested in what’s in it for entrepreneurs like me.
Here’s the thing: the prices so far are bargain basement: a small EC2 instance that typically costs $.10 per hour fluctuates between $.026 and $.036 an hour. The price you pay is whatever the current spot rate is … even if your bid is higher than that.
The use case Amazon suggests is bidding for this unused capacity to handle batch processing that is not time-critical. But since the price so far has never risen anywhere close to the “rack rate” of .10$/hr, placing a high bid (say for $.12/hr) should allow you to have access to amazon compute resources at drastically reduced rates (currently between 25% and 35% of current rates).
Of course, my perpetual high bid will help keep the prices from dropping too low on the spot market, and I’m sure Amazon appreciates that. From the perspective of the spot market, I’m a sucker. It’s only from the perspective of someone who needs compute resources on a constant basis that I’m getting a good deal. But a 50%-75% discount on my servers in exchange for a simple change is nothing to sneeze at!
One caveat: I’m assuming that prices on the spot market will never rise much above the “rack rate” for servers. This seems like a good assumption, since if they ever do users can always instantiate those servers instead of the ones on the spot market. But these are early days for computing as a real-time commodity, and no one really knows what this market will be like.
I’ll keep you updated as we at SlideShare experiment with this exciting new pricing model … we’re going to switch half of our conversion servers over to the spot market first, and see what happens over the next several weeks.

One thought on “Gaming the Amazon Spot Market

  1. Michele Mazzucco July 19, 2011 / 10:11 am

    Hi, as you pointed out your approach works ONLY if the other users will not use the same strategy, otherwise the price will grow (how much it grows depends on how much the other users bid).
    I have been working on this problem for building reliable services, e.g., I wanted to answer the question “Can I use spot instances for achieving 99.999% availability without over-bidding?”
    Apparently it is possible. An overview of my findings is reported here http://cloud-computing-economics.com/business-benefits-applications/delivering-reliable-services-spot-instances/
    while the technical paper is here http://math.ut.ee/~mazzucco/papers/hpcc_2011.pdf

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