Amazon Cuts Cloud Prices: New AWS Price Reductions Target Reserved Instances

Amazon Web Services on Wednesday introduced a new round of price cuts mostly geared to making more affordable the Reserved Instances through which customers can realize savings by booking cloud capacity for one or three years.

The long-term contracts that provide sustained AWS usage discounts are increasingly popular, delivering savings of up to 75 percent over on-demand pricing.

AWS can continue reducing its prices because "we work with our suppliers to drive down costs while also finding ways to build hardware and software that is increasingly more efficient and cost-effective," said Jeff Barr, AWS' chief evangelist, in a blog post.

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In last week's first-quarter earnings call, Darin Manney, Amazon's head of investor relations, praised reserved instances as beneficial to both customers, by delivering savings, and the cloud provider, by generating deferred revenue. Customers are gaining comfort with booking consumption in advance, he said.

To make those solutions more attractive, AWS is adding the option of purchasing 3-year reserved instances with no upfront payment for most of the virtual machine types available on its cloud. Previously, you could only defer payments on the 1-year contracts.

Price cuts are also being implemented across machine types for 1-year Reserved Instances and Convertible Reserved Instances, which allow customers to change the instance type at any time as their applications evolve.

The prices customers will see depends on region and operating system, Barr said.

Amazon is also lowering the price of M4 instances running Linux by up to 7 percent. M4 is AWS' latest general purpose machines that balances compute, memory and networking.

During the Q1 earnings call, Amazon CFO Brian Olsavsky noted the quarter was the first to fully absorb seven AWS price decreases implemented near the end of last year. They didn't slow AWS' march to a $15 billion run rate, he told investors.

"The latest price reductions for AWS M-class instances are substantial,’ said Scott Mellegaard, director of cloud strategy at Trace3, an AWS services provider based in Irvine, Calif.

Customers, on average, see almost 40 percent of their AWS bill go to M-class instances, he said, meaning that reduction ’will make an immediate and noticeable impact on their next bill.’

Calculating the benefits of the new Reserved Instances will take longer, Mellegaard said, but it’s definitely worth investigating the benefits of pre-purchasing additional discounts for servers hosting longer-running applications.