Amazon’s price reductions take the form of EC2 ‘Reserved’ Instances. Users can opt to ‘reserve’ an instance for an up front cost. Reserved Instances then have a lower rate for each instance-hour use afterwards. For example, a Small instance normally costs $.10 /hour. A 1-yr Reserved Small Instance costs $325 up front and then $.03/hour. That works out to a 33% discount if you use it for a full year. A 3-yr Reserved Instance ($500 up front), results in a 50% discount over the 3 years.

The discounts are the same across the spectrum of EC2 Instance types. If you use your servers full-time, the 3-yr Reserved Instance is the better deal compared to the 1-yr instance if you use the instance for longer than 12 months:

What’s wrong with discounts?

Don’t get me wrong, the Reserved Instances will save BrandVerity a lot of money. I completely understand why these long-termish commitments make sense for Amazon, but some of the magic of EC2 just disappeared:

• Moore’s Law Violations: EC2 is nearing 3yrs old and Amazon hasn’t lowered prices (or increased capabilities) of its basic compute unit. They’ve introduced a ton of different configurations, but core prices haven’t budged. Committing to 3-yr usage and prices gives me the feeling that we aren’t on a pricing slope that parallels Moore’s Law.
• Oh, The Democracy!: Capital suddenly matters. Nothing costs more for the boot-strapped startup, but the company with capital can build a significantly lower cost-basis.
• Scale Flexibility: Committing to specific instance types increases the cost of moving between different EC2 types. UnReserved Surge capacity is now much more expensive vis-a-vis Reserved every-day servers.

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Amazon EC2 Reserved Instances - Why I’m not a Fan (but use them anyway)

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