
Does Amazon Web Services Pricing Follow Moore's Law? - deitcher
http://blog.atomicinc.com/2015/03/03/does-amazon-web-services-pricing-follow-moores-law-2350/
======
skuhn
It's difficult to top AWS just based on an apples-to-apples comparison of
buying servers versus turning up EC2 instances. EC2 is pretty price aggressive
if you know what your needs are, identify an instance type that fits well, and
reserve it for 3 years. A lot of people don't actually achieve all three, but
it's often possible.

Most comparisons overlook the crucial price differentiator between AWS and a
datacenter build: bandwidth costs. AWS bills based on bytes transferred, every
IP transit provider bills by 95th percentile or similar.

A 1 gig commit on a 10 gig circuit is $1-2/meg in a well served on-net
building, so let's say $2000/mo. The switch is $5000 or so, something that
can't do full table BGP but is layer 3 capable, and support is $1000/yr. The
cross connect is $300/mo. Plus a little bit more for optics and fiber. Over
three years the cost is $91,000 (plus power to run the switch), if you never
go above the 1 gig commit. Seems like a lot of money right?

Compare this to transferring 500mbit/s constantly to the Internet over 3 years
at AWS pricing. That amounts to 156 TB / month transferred. Per month that
will cost $11,878.40. Over 3 years the cost is $427,622.40.

There are some other key differences between AWS and datacenters: \- it puts
all of your spending into opex, eliminating capex (this matters for some
businesses); \- it limits the ways you can solve problems, there's no VRRP
support for example, which is very limiting for a lot of service types; \-
there is no ability to peer or receive settlement free transit if you deploy
in AWS

However, in terms of raw dollars, the method that AWS uses to bill bandwidth
consumption is always the major cost differentiator.

~~~
athrun
The bandwidth between AWS regions and Cloudfront is free so you can save a lot
here as well while improving performance for your end users. And on the
Cloudfront side, you can negotiate pricing to further reduce the cost.

Edit with Source: Cloudfront pricing page:
[http://aws.amazon.com/cloudfront/pricing/](http://aws.amazon.com/cloudfront/pricing/)

"If you are using an AWS origin, effective December 1, 2014, data transferred
from origin to edge locations (Amazon CloudFront "origin fetches") will be
free of charge."

~~~
skuhn
Cloudfront is cheaper, that is true. The same 500mbit/s outbound via
Cloudfront is $381,173 for 3 years at list prices. I think that this has given
Cloudfront an enormous pricing advantage in the CDN market, considering that
using any other CDN means paying EC2/S3-outbound plus the third-party CDN's
prices.

If your content is highly cacheable, you can still use a third-party CDN and
come out ahead. Since your EC2/S3 outbound will be 1/100th or 1/1000th of the
total outbound, it starts to not really matter. For dynamic content, you're
essentially being double billed, which is undesirable.

Either way, you're not going to get content out of AWS for an order of
magnitude less money, which is what you can get in a conventional datacenter
build. AWS is billing CDN-style: per byte transferred. When combined with the
hit rate, this makes some amount of sense for a CDN service (like Cloudfront):
every byte transferred has an impact on the edge caches.

I don't think that it makes much sense to bill EC2 bandwidth this way, but
since people are obviously willing to pay it, Amazon has no real incentive to
restructure their pricing.

This practice is probably the single largest source of lock-in for AWS, even
above all of their hosted services like ELB and SQS. It's also why startups
that run out of money sometimes can't let people take their data (photos or
whatever): they simply can't afford the outbound bandwidth fees.

------
rkwasny
I don’t quite agree with all the calculations of AWS vs DIY.

m3.medium instance - 1 core, 3.75GB RAM, 4GB SSD

Typical server this days: 2*10 physical cores, 256GB RAM, 2 TB SSD For around
~$10k

So you can run AT LEAST 20 m3.medium instances on a physical box (without
overbooking). If you use overbooking a single server can handle probably 40
m3.medium class machines. So instead of 100 servers, you need 30, or more
probably 20.

Bottom line is: People locked in the cloud mindset do not understand how fast
physical hardware is this days compared to "cloud" offerings.

~~~
jdub
People locked in the physical mindset do not understand how flexible cloud
infrastructure is these days compared to "metal" offerings.

By the way, your rack is on fire.

~~~
beachstartup
[http://www.datacenterknowledge.com/archives/2015/01/09/fire-...](http://www.datacenterknowledge.com/archives/2015/01/09/fire-
amazon-data-center-construction-site-ashburn-contained/)

~~~
jdcarr
The point of his comment was that if Amazon have a fire that they'll deal with
the issue, you won't have to do anything.

~~~
beachstartup
if your instances go down you're going to have to deal with it.

~~~
deitcher
Yes, absolutely. Which means you need to architect and run expecting failure,
which is so much different than traditional apps. (I am calling architectures
10 years old, "traditional"; that is funny.)

~~~
beachstartup
you're supposed to architect assuming failure no matter what. it's been like
this for years. most engineers just choose to ignore best practices.

aws is just the first provider to explicitly tell their users "we don't care
if your servers go down. tough cookies." which is what they all should have
been doing in the first place.

------
jasode
I don't agree with the methodology for calculating AWS -vs- Moore's Law as
mentioned in blog articles such as this one.[1]

A more accurate cost model would require _multiple components_ in addition to
number of transistors that amazon buys.

For example, to fully build an AWS service:

++You need a plot of land for the data center. Do real estate prices follow
Moore's Law?

++Concrete and steel to erect the data center building. Do raw building
materials follow Moore's Law?

++Energy costs. Does the price of terawatts follow Moore's Law?

++Bandwidth costs. Does the price of network transfers from Tier 1 backbones
follow Moore's Law?

++Staffing costs. Do the programmers, system admins, and other techies'
salaries paid by amazon follow Moore's Law?

++etc, etc.

If transistor count was the _overwhelming_ cost item for supplying an "AWS"
offering, we could then ignore all other component costs as an insignificant
rounding error. Is this the case?

[1][https://gigaom.com/2014/04/19/moores-law-gives-way-to-
bezoss...](https://gigaom.com/2014/04/19/moores-law-gives-way-to-bezoss-law/)

~~~
Someone
_" Do real estate prices follow Moore's Law?"_

It doesn't have to. If prices are constant and computers halve in size/power
use every x months, real estate prices per bogomips halve every x months, too.

 _" Do the programmers, system admins, and other techies' salaries paid by
amazon follow Moore's Law?"_

Again, they don't have to. It also is possible to make efficiency gains. Here,
I would guess Amazon has outsprinted Moore's law.

Similarly, I would guess network costs and speed have gone down faster than
Moore's law.

Of the things you mention, my _guess_ would be that only energy prices are a
significant factor stopping AWS pricing from following Moore's law.

But yes, it is more complicated than "pricing should follow Moore's law"

~~~
bdcs
>Of the things you mention, my _guess_ would be that only energy prices are a
significant factor stopping AWS pricing from following Moore's law.

Ah, but this is subject to Moore's Law too: As transistor density increases,
performance per watt goes up (well, this requires Dennard Scaling also).
Hence, as Moore's Law advances, the power costs go down (at constant
performance).

Your guess about network costs are correct, their prices have a half-life of 9
months:
[https://en.wikipedia.org/wiki/Moore%27s_law#Other_formulatio...](https://en.wikipedia.org/wiki/Moore%27s_law#Other_formulations_and_similar_observations)

------
MichaelGG
No, but Google Compute Engine does a bit. For instance, Azure is at least
twice as expensive than Google for cloud compute. (In addition to having their
weirdass PaaS design leaking into their IaaS. Nice service otherwise.)

I was super hesitant to use Google for anything (A: because I dislike them
now, B: I couldn't be sure they'd be committed to it, C: I recall they screwed
people on Google App Engine?). But their offering is so much more
straightforward and much cheaper. No commits, just use VMs and get discounts.

GCE is also way faster to start up. And single-core performance blows away
Azure.

Azure and AWS make a big deal about storage and transfer, while ignoring
they're way overpricing the CPU.

Edit: Here's Google's pricing "philosophy":
[https://cloud.google.com/pricing/philosophy/](https://cloud.google.com/pricing/philosophy/)
where they explicitly say they're committed to Moore's Law and others aren't.

------
t0mas88
Nice story, but the numbers don't add up at all. If you order managed colo at
a provider like Rackspace (which is a much higher level of support and
guarantees than AWS, basically 24x7 and 100% on network and cooling etc) and
get dual or quad CPU machines (really standard, I think they don't even have
single CPU as an option anymore) with 256 or 512 GB ram you can run 64 or even
much more "AWS medium" nodes on 1 piece of hardware. Because the AWS "core" is
based on a very old type of Xeon.

So in reality you could run this setup with fully managed network and a 100%
SLA on 9 or 10 dedicated machines at Rackspace (or even a cheaper competitor
of theirs). The price for that would be around 9x 800 and the cost of two
dedicated firewalls for a redundant high performance setup. So I would guess 7
to 8k USD per month or 288.000 USD in three years. Which is over 60% cheaper
than the proposed AWS setup.

So maybe if you buy way too much hardware and combine it with a lot of manual
work that could be done cheaper by a good provider, then yes... AWS looks
cheaper. But if you look at a realistic setup on that scale, hardware is much
more cost effective.

The sweat spot for AWS is a small setup or very flexible load. If you're big
with a steady load, a smart setup with a managed provider is much more
effective.

(And as a last remark: both AWS and Google have huge discounts for long
commitments, Google even does it without upfront commitment. So if you use
those prices the two options end up much closer again)

------
rjsamson
Quick comment on the comparison of AWS cost to DIY cost - for AWS costs you're
using the on demand pricing for 3 years and comparing it to the cost of buying
hardware over 3 years. If you're going to be running instances for 3 years
you're probably going to be using reserved instances - in the case of
m3.medium instances the rate drops from $0.070 / hour to $0.0261 / hour.

So, with the 3 year reserved pricing your total cost ends up being something
like $411,544 - less than half the cost of the referenced $880,000 hardware
purchase price.

~~~
deitcher
You are 100% correct. That is why the article explicitly listed it as an
assumption, and that the advantage for public cloud over private hardware is
even better once you account for that.

~~~
rjsamson
Whoops - totally missed that assumption!

------
jimmrf
Fascinating topic - yes AWS pricing falls slower than Moore's Law, this
reflects the degree of market power shared by few large public cloud providers
given the scale needed to compete at the top level. The profit maximizing
strategy for each is enjoy rising margins while costs fall and reset prices to
a lower level as a pack once costs have fallen so low that it is most
profitable to lower the price to serve a larger market (google 'oligopoly' or
'kinked demand' for further clarity).

There was actually a slide addressing this very question used in a Urs Hölzle
keynote at Google Cloud Live 3/25/14\. It was titled 'but prices are not
falling fast enough' and showed 2006-2014 cloud prices falling 6-8% vs. 20-30%
improvement in hardware pricing. I included a screenshot in my deep-ish dive
I'm developing on the economics of cloud market pricing
[http://www.stackalpha.com/blog/2015/2/25/cloud-price-wars-
th...](http://www.stackalpha.com/blog/2015/2/25/cloud-price-wars-the-joke-is-
on-us)

~~~
ceejayoz
> It was titled 'but prices are not falling fast enough' and showed 2006-2014
> cloud prices falling 6-8% vs. 20-30% improvement in hardware pricing.

Did power, land, maintenance, staffing, R&D, etc. costs fall 20-30% during
that time period too?

~~~
nostrademons
For Google's purposes, this is immaterial. They already have core competencies
in power, land, maintenance, staffing, R&D, etc that are sunk costs. Their
point is that Amazon is enjoying 80-90% profit margins, and so this is a
lucrative business for them to enter. Moreover, they're pointing out that they
can offer you large cost savings sustainably to entice you to switch.

For a small business's perspective, the cost of overhead is absolutely
material - but then, most of them probably wouldn't switch to bare metal
anyway, but rather Dockerize their app and shop it around to whoever the
lowest-cost IaaS provider is.

~~~
ceejayoz
> They already have core competencies in power, land, maintenance, staffing,
> R&D, etc that are sunk costs.

Their cloud offerings expanding mean more power use, more land use, more
maintenance, more staffing, more R&D. It's not all sunk cost.

~~~
nostrademons
But the point of the graph is that these together << the price they can charge
for the service. That's what profit is.

~~~
ceejayoz
Of course they're making money off it.

Claiming that a 20-30% reduction in raw hardware costs means you should see
the entire service's cost go down 20-30% ignores those non-hardware costs,
though.

------
markpundmann
Price drop speed has already been examined:
[https://gigaom.com/2014/04/19/moores-law-gives-way-to-
bezoss...](https://gigaom.com/2014/04/19/moores-law-gives-way-to-bezoss-law/)

~~~
deitcher
Excellent. I like the numbers - it took a long time to hunt down numbers, the
GigaOM article would have helped - but it is the underlying costs beyond the
hardware that make it so.

------
dumbfounder
The increasing energy cost in computing these days should change our thinking
on Moore's law. We shouldn't be worried as much about doubling the power of a
cpu, especially in a cloud setting, because you can always do that by using 2
cpus. We should instead create an equation based on the computing power,
energy consumption, and energy prices.

------
bengali3
remember, price != cost. pricing has many other influences.

Interesting conundrum however that the author discusses, that the gigaom link
does not. At first glance this may appear that big consumers would be better
off with their own hardware long term since they could theoretically follow
the moore curve, but the missing piece is the cost of ownership AND cost of
staying on the curve(since the curve keeps falling, you're continuously
upgrading)

Next up is to build such that you can treat all cloud hosts as a commodity.
Continuously monitoring pricing and loads and moving large amounts of
instances from one provider to the next to optimize your costs.

------
late2part
I hope to have time to build a google spreadsheet to compare your numbers more
closely.

Mose people don't realize that an AWS "core" is a threaded core. So the
example quoted below of 2 processors with 10 cores is not 20 equivalents to
amazon cores, but 40 cores.

Additionally, you're not depreciating your costs over several years as near as
I can tell.

Whatever these numbers come out to, it's clear that if you're small and need
unpredictable agility, AWS is cheaper. If you're larger and have enough
foresight into your usage pattern, AWS is never cheaper at the right economy
of scale.

~~~
mabbo
> Whatever these numbers come out to, it's clear that if you're small and need
> unpredictable agility, AWS is cheaper. If you're larger and have enough
> foresight into your usage pattern, AWS is never cheaper at the right economy
> of scale.

Isn't that pretty much just a rule of the economy? Something like "It will
always be cheaper to do it yourself, at a sufficient scale"?

~~~
late2part
Probably true. But, I think, and hope to prove, that that inflection point is
much lower than represented in the OP's writings.

------
coldcode
I'm always amazed that anyone can accurately calculate any cost of a set of
Amazon web service elements, must less do it sufficiently accurately to
measure over time.

~~~
dbarlett
There's an old joke that AT&T was really a billing company that happened to
offer phone service. You could say the same thing about AWS.

------
astrodust
Moore's Law refers only to the number of transistors in a component, and while
transistors _generally_ translates to computing power, this is not a 1:1
thing.

Lately the shift has been from CPU power to GPU power, so while there's more
compute capability than ever, you need a hybrid system to take full advantage
of Moore's Law.

------
alexnewman
The hp server prices had no discount. Made me think the guy was being
dishonest or uninformed about the rest

------
yellowapple
It probably doesn't if the article's headline has to phrase it as a question
instead of just stating outright "Amazon Web Services Pricing Follows Moore's
Law".

------
TTPrograms
GPU instances still seem overpriced. Reserved gets you $0.30 an hour, which
would run you ~$8000 over 3 years. Hard to imagine the specs are much better
than a $1500 computer.

~~~
skuhn
The GPU instances use Nvidia GRID K2 cards, which cost $3000 in qty 1. AWS
only runs two GPU instances per card, so they need to recoup the cost from
fewer instances than typically share components. Nvidia's high end cards
(GRID, Tesla) also have significantly disproportionate per-gflop costs.

The g2 instance costs have also come down a bit in the last 6 months, so they
used to be even more overpriced.

For $8.4mm you can run 592 g2 instances reserved for 3 years and get 1,355,680
gflops. In a datacenter environment (including power, network equipment,
installation, redundancy, etc.) you could achieve that level of performance
for $3mm (not using GRID or Tesla cards). And then bandwidth prices really
blow EC2 out of the water.

