What is the best way to choose an IaaS pricing model for your business?

Selecting an IaaS pricing model is like tailoring a suit: on-demand pricing is your bespoke option. It's adaptable, but costly. To rock this style, track usage meticulously, explore reserved instances, and keep a sharp eye on costs. Blend flexibility with fiscal wisdom

On-demand pricing is the default choice for IaaS users unaware of other methods. But it's easily one of the most expensive options for running your workloads. It's worthwhile evaluating more cost-effective options like: 1. Reserved instances for steady workloads 2. Spot instances for low-priority or batch workloads 3. Negotiating with the IaaS provider for a savings plan This doesn't mean you can completely forget about on-demand pricing. You must choose the right pricing model for each unique workload you're running on the cloud. You should: 1. Rate the criticality of each workload 2. Flesh out the specific cloud traits it needs (e.g. high compute, speed of scalability, etc) 3. Make a costing plan that factors in (1) and (2)

Here an AWS cloud example for on-demand pricing: In a data analytics project, a retail company utilizes AWS on-demand pricing to analyse customer behaviour and optimize marketing strategies. The variable workload, short-term nature, unpredictable demands, and development needs make on-demand instances ideal. AWS on-demand pricing allows the company to instantly provision resources during peak analysis times, scale down during off-peak periods, and optimize costs without long-term commitments.

The best way to choose an IaaS (Infrastructure as a Service) pricing model for your business is to carefully assess your specific needs and usage patterns, compare pricing options from various providers, and consider factors like on-demand, reserved, or spot instances, as well as any potential discounts for long-term commitments. It's essential to strike a balance between flexibility and cost-efficiency based on your workload requirements. Also, use the cost policies (like Sentinel) to ensure resources are provisioned with an org defined size and below the defined cost.

The best IaaS pricing model for your business will depend on your specific requirements, financial constraints, and the dynamic nature of your workloads. Access and understand the infrastructure requirements, the type of workloads you need to host, such as web applications, databases, storage, or other services. Based on these factors determine the requirements for CPU, memory, storage, and network.

Reserved pricing commits to a one or multi-year contract for specific resources. This usually often comes at a discounted rate compared to pay-as-you-go. It offers cost predictability but less flexibility.

Reservation are a tradeoffs that you do for a cheaper cost, but you'll lose the flexibility of cancelling over stopping service anytime. Also note that there are limitations in Exchange and cancellations if Reserved Instances.

While reserved instances offer substantial cost savings for predictable workloads, they come with the drawback of upfront payments, long-term commitments, and limited flexibility. It's essential to carefully assess your workload's requirements and usage patterns before opting for reserved pricing to ensure it's the right choice for your specific use case.

If you have a stable and long term usage, reserved pricing is the most cost efficient model for you. It’s ideal for workloads with predictable resource consumption. It’s not as flexible as the on-demand pricing model and usually comes with a lock-in period. For example, If you have a web server with a steady traffic and you need it running for at least a year, reserved pricing model will offer you the best savings.

Ideal for long-term, stable projects, reserved pricing offers both cost savings and resource assurance, but demands careful forecasting and commitment. Reserved Pricing in the IaaS world, is designed for businesses with predictable workloads. Unlike the flexible nature of on-demand pricing, reserved pricing involves committing to a set amount of resources for a predefined period, usually spanning from 1 to 3 years. This commitment results in significantly discounted rates compared to on-demand prices. The beauty of RIs lies in the predictable monthly or yearly costs, simplifying budgeting processes. However, this comes with the trade-off of reduced flexibility, as changes in business needs might lead to paying for unused services.

Using Spot instances in under-utilized cloud regions can indeed lead to significant cost savings, often up to 90% compared to On-Demand instances. This cost-effectiveness makes them a great choice for development and testing workloads where high availability is not a primary concern. Additionally, you can use Spot instances as a means for chaos testing. The inherent volatility and potential interruptions of Spot instances make them a suitable choice for testing the resilience of your applications and infrastructure. By intentionally subjecting your system to the unpredictability of Spot instance availability, you can assess how well it can recover from disruptions, which is a valuable aspect of chaos testing.

In Spot Pricing, you bid on spare cloud capacity, which can result in significant cost saving. However, this may not be suitable for mission-critical workloads.

Reserved compute in AWS cloud offers variable types of reservation to cover many use cases You can reserve EC2 instances in 3 types of reservation 1. Standard RIs: Offer up to 72% discount for consistent usage. 2. Convertible RIs: Up to 54% discount with flexibility to modify; suitable for steady-state usage. 3. Scheduled RIs: Match capacity to a specific time window, ideal for recurring schedules. You can pay all upfront and get the biggest discount, or pay partial upfront and get less discount, or no upfront which offer a lower discount. You can also benefit from the saving plans Compute Savings Plans: Offer up to 66% discount EC2 Instance Savings Plans: Save up to 72% discount

Spot model offer the best prices but there’s no guarantee that you’ll be allocated with a resource instantly. This model is ideal for workloads which are not time critical. If you have batch jobs running in the background, spot pricing might be ideal for such work loads. A busy web server? Not so much.

An extensive assessment should be conducted before selecting an IaaS pricing strategy for your company. 1. Assess Needs: Recognise the compute, storage, and networking requirements for your infrastructure. 2. Cost Analysis: To match your workload and budget, compare various price structures, such as pay-as-you-go, reserved instances, or spot instances. 3. Workload Predictability: Reserved instances may be more cost-effective if your workload is steady and predictable; otherwise, flexible pay-as-you-go may be a better option. 4. Scalability: Select a model that is easily scalable to meet evolving business requirements. 5. Vendor Comparison: Determine which IaaS providers are the greatest fit for your company by comparing their prices.

Some key steps and factors to compare pricing models are: 1. Assess workloads and requirements: understand the requirement and determine the factors like CPU, memory, storage, and network requirements. 2. Determine how easily you can scale your infrastructure up or down to accommodate changes in workload demand. Choose a pricing model that aligns with your scalability needs. 3. Assess your long-term business goals and growth projections, pricing model can differ a lot based in this area.

"However, it requires thoughtful planning and analysis" - this part is very true in terms of pricing optimizations, be it choosing reserved instances, spot instances, or defaulting to on-demand pricing. Don't fret if you don't get it right the first time, especially with reserved instances where the commitment might be set for years. Opt for flexibility if you are unsure, for example, Saving Plans in AWS over Reserved Instances - this has been helpful in one of my company's work, when migrating from serverless to EKS with EC2 resources. Even if you can't harness any pricing models for discounts right away, it's not the end of the world! You might still be eligible for Sustained Use Discounts for workloads that stay up for the whole month!

Comparing cloud pricing models involves considering specific needs and trade-offs. For instance, in an e-commerce platform use case: 1. On-demand pricing is Ideal for dynamic workloads with fluctuating demand. It's cost-effective for unpredictable traffic patterns. Pay only for what you use, but costs can be higher for consistent, high workloads. 2. Reserved Pricing Suited for stable workloads with predictable demand. Long-term commitment offers cost predictability and substantial savings. Great for applications with consistent traffic. 3. Spot Pricing is Perfect for non-critical, fault-tolerant workloads like big data processing. Offers the most cost savings but with the risk of resource preemption.

On-premises solutions are back in Fashion. They give companies the ability to have complete control over their data and infrastructure, allowing them to ensure that their data is stored securely and that their infrastructure is performing optimally. On-premises solutions also offer greater predictability in terms of costs. While cloud computing can have variable costs based on usage, on-premises solutions have more fixed costs, making it easier to budget and plan for the future. Another reason is the increasing focus on data privacy and security. With increasing concerns around data breaches and data privacy, many companies are looking to keep their data on-premises, where they have greater control over security and access.

Selecting the ideal IaaS pricing model is vital for your business. From my perspective, it's crucial to consider the Total Cost of Ownership (TCO) when comparing cloud and on-premise options. Cloud operates on an operating expense model, while on-premise involves capital and operating expenses. To make an informed choice, leverage online calculators like AWS TCO or Azure TCO Calculator. Assess scalability, usage patterns, contract length, geographical presence, and resource optimization. Stay alert for vendor discounts. The key is balancing your business's unique needs with financial prudence for the future.

In my experience don't rush to saving plans or reserved instances. You should first look at your estate and look to right-size the instances. Then you lock in the saving plans or RIs.

My experience is in B2B SaaS and we have to be flexible based on the growth our partners want to acheive. We would like all our partners to start witha volume commit, that makes our work together predicatble but this is often at odds to our partner's approach when they begin. So we have to offer flexible plans that can begin with On Demand offers, but we ensure we work closely to track when our partners have reached sufficient volumes to make a volume commit viable. We are often the ones telling our partners the minute they are in the zone where they are effectively "out of pocket" because they are on the wrong plan. The benefit of this approach is that our partner gets a margin boost when they convert, everyone's happy!

There is another alternative pricing model: Fixed Monthly Plans: Some providers offer fixed-rate plans for specific resources or services, providing cost predictability for selected workloads.

If you're not starting from scratch, baseline your existing environments. For development environments, monitor daily activity and scale down during inactive hours. For production, study usage patterns to understand peak resource needs. You can use agent-based approaches, like those offered by AWS, for baselining. With a clear baseline, you can now pick the right instance size and family. You can then concentrate on the cost savings by mixing reserved, spot, and on-demand instances within savings plans.

Alternate pricing models: Dedicated Hosts: This involves allocating an entire physical server within a cloud data center exclusively to one customer. It suits organizations with stringent security, compliance, and licensing needs, such as those requiring isolated resources or specific dedicated hardware. Challenges include higher costs, limited scalability, and additional management. Free Tier: Major cloud service providers offer a limited-time promotional free tier, granting users access to basic cloud resources like VMs, storage, and databases at no cost. Ideal for learning and experimenting with cloud services, but it comes with restrictions on resources and time limits.