How the cost of AWS is calculated
Amazon Web Services (AWS)—or simply AWS Cloud—is an on-demand cloud service provider (CSP) that provides cloud-based services on a metered, pay-as-you-go pricing scheme.The cloud provider enables organizations to reduce IT costs, accelerate time-to-value, and enhance scalability through a broad set of compute, networking, storage, and analytic services.
This post discusses pricing principles for AWS costs, use cases and benefits of the AWS pricing calculator, design principles for cost optimization, and the different pricing models AWS offers. You’ll also learn how Parallels® RAS can help you minimize the total cost of ownership (TCO) of AWS.
Cost of AWS pricing principles
The prices for AWS services can vary depending on which service the organization chooses. Even though you can use various approaches to compute cloud costs, AWS’s most popular method is based on the time spent utilizing the service. Like most public CSPs, the platform allows you to pay only for the time spent using the cloud-based services.
Read on for more about the various AWS pricing principles.
Pay-as-you-go
The main idea behind this principle is that instead of purchasing or building a costly IT infrastructure, you simply rent it. As such, it allows the organization to turn its capital expenditure (CapEx) into operating expenses (OpEx). This model also allows the company to adapt to new business requirements readily without overcommitting budgets.
In addition, you can also adapt the business based on the organization’s requirements and not on forecasts, minimizing the risk of overprovisioning resources or missing capacity.
Save-when-you-reserve
Amazon Elastic Compute Cloud (EC2) and AWS Lambda are fundamental features of AWS’s compute services that allow organizations to deploy scalable, on demand instances. Subscribers can access EC2 or AWS Lambda instances containing the desired applications by booting an Amazon Machine Image (AMI) or virtual machine (VM).
AWS provides discounts (to the tune of 30% to 50%, according to Amazon) if you reserve an instance for one to three years in advance. You could also use Spot instances, which allow the organization to use EC2 instances that are available at any given time, and AWS can take them away if required by other users. The Spot instances approach enables the organization to request spare compute capacity with no upfront costs and at a discounted hourly consumption rate.
Pay-less-by-using-more
As the organization’s consumption grows, you may want to take advantage of AWS’s volume-based discounts and save money. Pricing for services like Amazon Simple Storage Service (S3) are usually tiered, which means the more you use the service, the less you pay per GB.
Similarly, Amazon EC2 also provides volume-based discounts to subscribers that spend more than $500,000 in upfront costs. AWS also offers many services and options for most use cases that you can use to meet the organization’s requirements at a lower price. For example, you can leverage AWS services, such as Amazon Elastic File System (EFS), and AWS backup options, like Amazon Glacier, to move data between different storage services efficiently.
Use cases and benefits of AWS Pricing Calculator
AWS Pricing Calculator is a cost estimation tool that you can leverage to estimate costs for various AWS products. Another cost estimation tool is AWS Cost Explorer, which you can use to explore and analyze the company’s historical spending and usage. The AWS Cost Explorer provides a cost management console to help you visualize the costs and usage associated with various AWS services.
You can use the AWS Pricing Calculator to model the organization’s AWS cloud solutions before building them, explore the different service points, and review the computations behind the estimates. The primary goal of this tool is to generate rough cost estimates for AWS resources. This makes it ideal for creating quick comparisons for various configurations and consumption patterns relating to AWS usage. There are four primary benefits of using the AWS Pricing Calculator:
- Transparent pricing. You can see the computations behind the cost of AWS product configurations. For example, you can view the prices per service or collection of services to help you analyze the company’s cloud costs.
- Shared cost estimates. You can use the tool to save the link to each cost estimate, which you can share with your colleagues or revisit at a later data.
- Hierarchical group estimates. You can sort the cost estimates into groups and align them with the organization’s architecture for transparent service cost analysis.
- Estimate exports. You can export the cost estimate to a .csv file and share it or analyze the company’s proposed architecture spend.
Design principles to optimize the total cost of AWS
There are five design principles that you can use to optimize the total cost of ownership for AWS:
- Implementing cloud financial management. You’ll need to invest in sound financial management to succeed with your transition to the cloud. For example, you must dedicate time and resources to build capacity for this new technology domain and usage management. You can build this capacity for a cost-efficient organization through knowledge building, resources, programs, and processes.
- Adopting a consumption model. AWS recommends subscribers only pay for the resources consumed and scale up or down based on requirements. For example, suppose the development team only uses the development and testing environments for eight hours a day in a workweek. In that case, it makes sense to stop these resources when developers are not using them.
- Measuring the overall efficiency. You’ll need to determine the workload’s business output and the expenses associated with delivering it. This way, you know your gains due to increasing the output and minimizing costs. You can leverage AWS monitoring tools to determine workload performance and output.
- Stopping the expenditures on undifferentiated heavy lifting. You should focus on the line-of-business activities and your customers rather than on the IT infrastructure. This is because AWS already does the heavy lifting for most data center operations, like stacking, racking, and powering the servers. AWS also removes the operational burden of managing and maintaining the OSs, applications, and managed services.
- Analyzing and attributing expenditures. AWS makes it easier for organizations to identify applications’ consumption patterns and costs accurately, enabling transparent attribution of costs to individual workload owners. This can help determine the return on investment (ROI) and allow workload owners to maximize resource consumption while reducing costs.
Pricing models for cost of AWS
AWS provides five flexible pricing models you can use to optimize costs. You can leverage one or more of these models to plan your AWS services. For a detailed look at these pricing models, read on.
On-Demand
AWS allows subscribers to leverage VM instances with on-demand pricing, where they pay per hour or by the second. This pricing method allows you to create VM instances without any upfront costs. Depending on your workload demands, you can also scale up or down and pay the specified rates for the EC2 instances you use.
This model is appropriate for the following:
- Subscribers that prefer flexibility and low-cost compute instances without any upfront payments or long-term commitments.
- Workloads with spiky or unpredictable requirements.
- Workloads being developed or tested on Amazon EC2 instances for the first time.
While the on-demand model provides high flexibility and scalability, compute instances can be more expensive if not managed well.
Spot Instances
Spot Instances allow an organization to request spare compute capacity. According to Amazon, companies using this pricing model can save up to 90% of costs compared to on-demand pricing. The pricing model can allow you to achieve significant savings, especially when the company needs to scale up quickly, and it’s appropriate for:
- Users that urgently require large amounts of additional computing capacity.
- Workloads with elastic start and end times.
- Workloads that are viable only at low prices.
However, despite the significant savings that Spot Instances provide, the model can be tricky, especially for fault-sensitive applications. This is because Amazon can terminate the spot instance whenever AWS requires this compute capacity.
Reserved Instances
The AWS Reserved Instances pricing model allows subscribers to enjoy significant discounts in return for reserving use of AWS for extended periods of time, ranging from one to three years. There are different ways a company can pay for reserved instances, including all upfront, no upfront, and partial upfront payments.
Setting up and maintaining AWS Reserved Instances is less complex than spot instances. However, the organization gets billed for all the reserved instances, even if it doesn’t use all the capacity.
Savings Plans
This pricing model allows an organization to enjoy low prices on EC2 and Fargate instances, provided that it consumes a consistent compute capacity (measured in US dollars per hour) for between one and three years. Like Reserved Instances, this model can allow a company to enjoy significant savings.
Dedicated Hosts
An AWS Dedicated Host is a physical EC2 server that an organization can reserve for private use. Using a dedicated host allows the organization to leverage the existing server-based software licenses, including Windows Server OSs and SQL Server. In-house IT teams don’t need to maintain the dedicated server regularly since AWS handles this.
However, dedicated hosts can be more costly, especially for small to mid-sized businesses (SMBs) with tight budgets.
Reduce your total cost of AWS with Parallels RAS
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