Why Amazon Reserved Instances don’t make economic sense for startups

At slideshare we spend a LOT of money on Amazon Web Services, especially EC2. We love AWS because the pay-as-you go pricing model means that we never invest in servers that we aren’t ready to use yet. But earlier this year, Amazon released the ability to prepay for a “reserved EC2 instance” (see my initial reaction here). In exchange for paying a fee, you get the right to consume instance-hours at 1/3 of the standard rate. You can do this for either one or three years (three years simply requires a larger fee). The pricing of both reserved instances and standard instances have recently been discounted.
I was curious whether this would be a good deal for slideshare, so I modeled out the cost over a three-year period for one large instance. I modeled 3 scenarios:
1) paying as you go (the way we do currently)
2) paying the 1-year reserved instance fee every year
3) paying the 3-year reserved instance fee
The discounting is identical across different instance types (I spend a little time double-checking this), so my conclusions should be relevant to you even if you use small or medium instances.
Here’s the spreadsheet.

The results surprised me quite a bit. Some quick observations:
1) Amazon bills at the end of the month (after usage). But the prepay happens at the beginning of the month (before usage). This pushes out the “break-even” point for an investment in a dedicated instance 1 month further than you might think. For the 1-year plan (the only one worth considering IMHO) this happens in the seventh month.
2) Discounts are not as generous as they appear. As a result, it ONLY makes sense to consider a dedicated instance for a machine that will be running 24 hours a day, 7 days a week.
3) Amazon pricing is rapidly being discounted. Locking your prices in for 3 years is almost certainly not beneficial to you at this point, given the small spread between the discounts (the difference is 18%. Given Amazon’s track record, betting that they will not discount their services by 18% in the next three years is very risky).
4) A 30% a year discount (which is what you get with the one-year prepay option I model) will certainly be attractive to many small businesses or larger companies. After all, a 30% yearly return on an investment is pretty good. But a startup will almost always have something else it can invest in that will pay better than 30%/year. For us it’s engineering: the faster we can improve the slideshare experience, the more money comes in the front door for us. The cash flow properties of amazon’s core pricing model (paying for the infrastructure you need after you use it) are pretty darned hard to beat.
Conclusion: 1-year instances may be a good choice for many customers. But most venture-backed, bootstrapped, or rapidly growing companies should just stick with the default Amazon pricing. So we won’t be investing in Amazon Reserved Instances right now. We’ll just rely on the steady discounting from Amazon to drive our infrastructure costs down over time.

EC2 Reserved Instances: are they a good deal?

Amazon today announced a plan that makes EC2 boxes a bit cheaper to rent for customers who use the box 24/7. It’s called a “Reserved Instance”, and it basically means you pay a certain amount up front in exchange for a large discount for either one or three years.

Is this a good deal
? As always, it depends. Let’s assume that you actually use a certain base number of servers from amazon 24/7 (like we do at slideshare). Ignoring bandwidth costs, a small instance costs $.10/hr * 24 hrs *365 days = 876$/year (or 73$/month).
With the one-year plan you’d pay 325$ up front, and ($.03/hr *24 hrs * 365 days), which ads up to 325 + 263 = $587, or a 32% savings. Your monthly cost ends up at 49$/ month.
Things get better on the three year plan. Here you pay $500 in exchange for the right to the .03/hr pricing for three years. Your total cost ends up being $500+ ($.03/hr *24 hrs * 365 days * 3 years), which is $1289 for three years, a 52% savings. Your monthly cost comes down to $35 / month.
So this seems like a good deal, but there’s some caveats. You have to pick what size instance you are going to prepay for: if you prepay for a small and it turns out you need a medium, there is no recourse. Also, you are having to pay money up front, which is definitely a negative (one of the great properties of AWS is the “pay by the drink” model which lets you pay for services AFTER you use them rather than before. This is obviously great for your cash-flow). Finally, reserved instances are not available for Windows servers yet, only for Linux ones.
A 52% discount is nothing to sneeze at, so if you’re sure you’re going to be using a particular machine type 24/7, it makes sense to take advantage of this program. A smart way to do it might be to move one machine over, and then pay for subsequent reserved instances over time with the savings. This way you can avoid committing too much money up front (which is never a good idea, especially in a recession).

Web site monitoring service recommendations

Can anyone recommend a good website monitoring service (doesn’t have to be free)?
I need sms and email alerts, the ability to send alerts when response time goes up or when a page contains particular text, and a minimum of false positives.
So far I’ve tested the following freebies and found them lacking in one way or another:
site247 (false positives: otherwise would have seemed the best option)
Mon.itor.us (tests only once a day. Very confusing interface)
Montastic (way too basic)
Next up for evaluation are the following paid services: if anyone has any experience with these, or has other services they think I should try, post a comment below!
doc-com monitor
11/15 Correction: mon.itor.us actually tests much more often than once a day.

Utility Computing is here: meet the Amazon Elastic Compute Cloud

Amazon has been pushing the limits of distributed computing, offering very useful, reasonably priced computing services like their awesome online storage service (S3), and their queuing service (SQS). Now they’ve released something MUCH more generic and powerful: a hosting infrastructure that lets you preconfigure your desired servers (by giving Amazon a disk image of a Linux machine). It’s called the Elastic Compute Cloud, or EC2 for short. When you want a server, you can then order it via the website and have it online within minutes. Pricing is a very reasonable 10 cents an hour (72$/month) plus bandwidth. Each instance provides the computing equivalent of a dedicated system with a 1.7Ghz Xeon CPU, 1.75GB of RAM, 160GB of local disk, and 250Mb/s of network bandwidth.

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ZDNet snafu: top 25 on-demand providers

Yesterday, I found an article on zdnet called “Top 25 on-demand providers”. The article did not live up to it’s title: in fact, it was remarkably content-free! A little digging turned up the backstory : after ZDNet published the story, the analysts that created the list asked ZDNet to remove the content.
Now ZDNet really shouldn’t be publishing content that they don’t have a license to. But they shouldn’t edit stories beyond recognition, either. If an articles main content must be removed, the best thing to do would be remove the article entirely, not castrate it beyond recognition. Thankfully, for those interested in the on-demand software space, there’s a google cache still available with the complete list. The list is also below. Enjoy! [via ken novak]

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Megatrend alert: Rich Clients, Web Services, and On Demand Software

The major trends in IT today reinforce each other in a powerful way. The two technology trends (Web Services and Rich Clients) are tailor-made for the new business-model trend (On Demand Software). The two technology trends also reinforce each each other, creating a self-reinforcing web of interactions that will accelerate once it gains momentum, and may not stop until it has absorbed most of the software world as we know it!

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