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.
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.
Today we released two premium services for SlideShare. (see venturebeat, techcrunch, om malik, and our blog). One product (LeadShare) helps you use your documents on SlideShare to collect contact information from potential customers. The other (AdShare) helps you get more targeted traffic to your documents. We’ve been working on this for six months now, so I’m really happy that we can finally talk about it! Here’s a quick overview of what we’ve built, and why I think it’s cool.
This service lets you put a “contact me” form on and around your document on SlidSshare. It appears next to the document, on download, inside the document, and inside any embeds of the document: so basically everywhere. ;-> We let you collect not just contact information (like address, phone number, etc) but arbitrary survey questions (e.g. “What size company do you work for”, or “When do you plan on buying a new CRM system”). If you’re a business and already have documents on SlideShare, you can turn this feature on and immediately start adding new potential customers to your sales funnel. Pricing starts at $1 per lead, and goes up as high as $22/lead if every single option is enabled (you probably won’t need every option though).
Here’s the cool thing: we’re inverting the standard process of “tell me your name, rank, serial number, and underwear size and I’ll let you read my promotional business literature”. I think that process is broken, and isn’t a friendly way to begin a relationship with a potential customer. With LeadShare, you share your document and THEN ask for contact information. People only fill out the form if they legitimately WANT to get in touch with you. This fosters trust, leads to higher lead quality, and gives you access to a much broader audience of potential customers (because your documents can be found using search engines, and can be shared viraly using platforms like twitter and facebook). I think it’s a more open and friendly way to do b2b marketing.
The other service we’ve built helps you get more views for your documents on SlideShare. We use the text of your document to promote it against similar documents in a special “promoted” area on the document page. Sometimes it can be hard to get noticed on SlideShare. AdShare will help you get more views from the kind of people that are likely to be interested in your content.
Here’s why I think this is an interesting new form of advertising. 1)It’s a very high level of engagement. On average people spend 3 minutes looking at a document on slideshare. When was the last time you spent 3 minutes looking at an ad?
2)It’s very highly leveraged. You’re not just buying a single view, you’re buying social and search engine traction for your content. Popular traffic becomes more popular on SlideShare as people bookmark it and forward it and blog about it, so if you give your documents a “boost” by promoting them they’re likely to be embedded, bookmarked, tweeted, and search indexed, leading to continual “free” views. Of course, if your content sucks this is unlikely to happen. Like every form of advertising, the quality of the creative matters. ;->
AdShare costs only .25 per document view (.35 per document if it is geo-targeted). And if you’re using LeadShare, you can use AdShare to drive more targeted views to your lead-generating documents. Whoa!
I’m sure you can tell how excited I am about us launching these new services. Please take them for a spin and let me know what you think. Is this a useful way to connect with your customers? What features should we ad? What do you think of our pricing model? The comments area below is where you can have your say.
Here’s a short video that Yahoo developer network made about the new SlideShare app.
(blog post here).
The cool thing for me about the app was that the first version was made with no management input at all! A couple of developers just decided that slideshare needed a mobile app, so they showed up at Yahoo hack day and built it (and won first prize!).
I was interviewed by Erick Mott from Lyris (a marketing software company with a very cool SAAS offering) during the Web 2.0 Expo conference last month. Here’s the video.
The blog article (can be found here
Over the last couple of months I’ve been trying to set up my television for watching video content online. Like many people, I don’t feel I like I get enough value from my cable TV subscription to justify the cost (85$ a month in my case). All I want is to watch the same movies that are available in my local DVD store (or on netflix), and I’m more than willing to pay the same price (4$ or so per movie).
The results have been disappointing to say the least.
My HDTV is hooked up to a mac mini, and I’ve been experimenting with Amazon Video on demand, itunes, and Netflix. I have a logitech wireless keyboard with a built in touchpad. All in all It’s a pretty sweet setup, and the technology works just fine.
Here’s the problem. On Itunes and Amazon, some videos are available for rent, while others are only available for purchase. This makes the process of shopping for a movie to watch tonight almost impossible. Even though lists of movies available for rent can be found, the second you start browsing, searching, and clicking on related content, you end up finding co-mingling the movies that need to be purchased with them movies that you can rent..
The result of this is that about half the time, you find a movie you want to watch tonight, and only THEN you find out that the only way to watch it is to buy a digital copy for the same price (or more) than you would pay for the DVD (clearly a ridiculous proposition: does anyone ever do this?). Neither platform has any way to exclusively view movies that are actually for rent, and this is basically a fatal flaw.
Meanwhile, Netflix has a different model for streaming rentals: they let you stream as many films as you want, but only from a very limited subset of their catalog. Unfortunately, the inventory they have available for streaming doesn’t include a lot of new releases (fair enough for all-you can eat pricing), and the interface doesn’t provide strong ways to search or browse while only looking at content that is available for streaming. So while the pricing model is different, the experience is broken the same way as Amazon and Itunes: the interface presents me with a large selection of digital objects to choose from, many of which are not available for streaming over the internet. This makes selecting a movie to watch extremely difficult.
Comcast, as shitty as it is, doesn’t show me movies and then tell me that I can’t rent them. So despite the fact that apple, amazon, and netflix have products that are in many ways is orders-of-magnitude better, they fail due to this one fact.
The whole thing looks stupid enough that it CAN’T be a simple design blunder. Amazon, Netflix, and Apple have some of the best best designers, engineers, and product people in the business. It smells like a licensing fiasco to me. After reading Marc Cuban’s excellent
A la carting of video will lead to disaster, I understand why TV people are loath to license their content a la cart. But why movies? Streaming at a per-rental rate is identical to renting a DVD, except it’s more accountable so the studios can presumably negotiate a nice per-stream rate. What is the blocker here, and can someone in Hollywood please have lunch with someone else in Hollywood and resolve this? Sweet Jebus, we want to pay you money, but if I have to wait another year for this I’m finally going to learn how to use bittorrent, and then you people will *really* be in trouble. ;->
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).