Updated: Mar 27
AWS is still the dominant player in the public cloud infrastructure space. Based on the total volume of workloads run in the public cloud, they control more than 60% of the market. They are still going strong: showing a >45% year-over-year revenue growth in the last quarter.
While Microsoft's Azure service has found success in making inroads to this market, and Google seems to be making real effort to grab more enterprise dollars, don't expect any significant shift in the short term, as the overall pie continues to grow at a rapid clip.
So, what are we seeing?
In 2018 we saw a 60% increase in deals being done by our clients in this space, compared to the previous year
2017 saw five times as many deals in the $1M tier, compared to the $10M+ tier
The reverse happened in 2018: five times the number deals were in >$10M tier, as compared to the $1M tier.
Our observations back up the strategy announced by AWS at their annual conference. They plan to maintain their market dominance by:
Pushing to sign enterprise clients into multi-year commitments; this is significant since all the big players tout their ability to get folks to sign multi-year, and,
Pushing to grow from within their existing client base (we've seen cases where clients signed a deal only 12 – 18 months ago and AWS has already approached them about resigning a larger commitment at a higher discount).
AWS' Services and Pricing Structure
Before we dive into multi-year commits, let's take a step back and talk about AWS' pricing model.
Pricing for all 150+ services is published directly on AWS' website. You may find it comforting to know that you won't have to struggle with price transparency like you do with many of the other IT suppliers in your portfolio. So, if you know what services you need, as well as the sizing or specifications for that service, you can simply look up what the cost of that service will be.
Many of the services are consumption-based, and you are only billed for the time or capacity of the services you use.
In addition, a few of the most popular services like the EC2 compute resource or the RDS database allow you to pay up front for the right to use these services for a 1- or 3-year term at a reduced rate. This is known as Reserved Instances, which can provide discounts ranging from 25% to >75%. In the spirit of transparency, all these reserved instance rates are also published, right next to the on-demand consumption rate. This means, if there's a predictability to you demand, you can consider purchasing some resources as reserved instances and reduce the size of your monthly bill.
Committing to AWS
Now let's examine multi-year commitments. Amazon calls theirs the EDP, or Enterprise Discount Program.
In exchange for a guaranteed annual payment from you, AWS will provide you with a discount across most of their services.
It also applies to many of the services where reservation discounts aren't an option.
If you look at committing $1M per year over a three-year period, your EDP discount will be 9%.
But imagine if you want to commit $10M per year over a 3-year period, their EDP discount in that case will be 13%, which is not really a big incentive trade-off for a big increase in commitment risk. The good thing about this is that we haven't seen AWS try to reduce anyone's discount at renewal time, which can often be a concern with suppliers. But it also means there's no room to negotiate these discounts either.
AWS's discount structure is inflexible and is defined in a matrix that takes only into consideration the length of your commitment and the amount you commit to annually.
Clients often ask for us for help finding the flexibility in AWS' pricing model, to help lower their overall cost, and we find AWS offers their pricing flexibility only in the form of credits. The good news is that there are many different programs AWS can funnel credits through. Whether you're a brand-new client, or an existing one, there are often opportunities to get access to this money to redeem for additional planned service.
There is one “gotcha” -- any time you sign into an EDP, you're automatically enrolled in Enterprise Support. This is great if you plan to utilize the support, but you should know that the baseline cost for this is $15,000 per month, or almost $200,000 per year. That's a significant percentage if you're considering committing $1M a year or less.
In terms of best practices when doing business with AWS, the first one is don’t rush into an EDP. The discounts aren't earth shattering, and you're also required to pay for an expensive support plan.
Also, be aware that the pricing flexibility offered by credits are not only made available when signing up for an EDP.
However, if you are in an EDP, be conservative in the amounts you commit to annually. You truly own the risk here. Let's say for example you make a $1M annual commitment, and you don't consume $1M worth of services, you lose any difference. The upside: if you are sure you'll spend the money, and end up exceeding your commitment, the discount still applies to any additional dollars you spend, so you don't lose it.
Also, understand your pattern of usage and what kind of usage the business is forecasting over the future term. If you don't, AWS may make some assumptions that lead to you committing more than you would choose to.
Lastly, compete as much of the business as you can. Underneath all these contract structures and fancy pricing models, you're just trying to purchase the infrastructure and services your business needs to get something done: run a new app, serve up a common database. We've seen that competing has been one of the fastest ways to unlock service credits from AWS to keep out the competition. And the competition isn’t just limited to Azure and Google.