I have read in the news about a deal that Mix Telematics from South Africa, struck with AWS which requires a spending commitment of $1 million a year in exchange for AWS giving MiX Telematics a 9% discount across a few key AWS services, including EC2 and the DynamoDB database.
This got me thinking.. I am beginning to see a pattern emerge of where some large organisations buy these multi-year commitment to get a discount and to inject a level of predictability into their cloud bills. Some would argue this is a form the old on premise CAPEX model with OPEX spend model.
The question I have is: have these organisations truly transformed themselves to be cloud ready? Moving to the cloud means your financial processes shifting from CAPEX to OPEX model. I suspect the answer is not.
9% discount is not exactly a mouth-watering discount for a 5 year commit with a yearly $1 million spend. Cloud service prices are dropping at a rapid pace. What if the price drops to below the price you committed to in 2 years’ time? For the remaining 3 years you will be paying a higher price than everyone else. What if the business needs change and demand drops? You will be paying committed fees for resources that are not fully utilised.
The safety net provided by predictability of multi-year commit is nothing but an illusion. There are better ways to obtain desired predictability and cost control. Optimising the consumption of your cloud resources while maintaining the agility the cloud provides.
Moving away from on premise data centres, means letting go of the old ways of doing things in order to take full advantage of what the cloud has to offer.
Thank you for reading and sharing.
Regards,
Nick
DeJong
July 29, 2019Funny timing of this post as I am I currently negotiating a 5 year commitment deal with one of the major cloud providers. We are doing much better than 9 percent discount but your post made me rethink the benefits of such agreement
DeJong
Archie
July 31, 2019We are also evaluating multi year commitment to mitigate against unexpected bill shock!!! I agree, the better solution is to optimise usage. The challenge is not sure where to start. Perhaps a post on cost control would be usefull
Virtual Tarzan
August 3, 2019Hi Archie, cloud cost control does need its own separate post which I plan to publish soon.
MDC
September 27, 2019Typically a discount is assessed on the meter cost, and it is not a fixed price, so if a meter today is $10, and you get 10% off you pay $9 if the price drops to 9 your new cost will be 8.1 and so forth.
I know my multi year cloud contract is set up this way.
Virtual Tarzan
October 14, 2019That is true MDC, discount is applied to usage cost. However, to get that discount, you have commit to a minimum spend, at least with the big three cloud providers. Of course there might be exceptions in negotiations .. some are better than others in negotiating! 🙂